The origin of osteoclasts was studied in an in vitro model using organ cultures of periosteum-free embryonic mouse long-bone primordia, which were co-cultured with various cell populations. The bone rudiments were freed of their periosteum-perichondrium by collagenase treatment in a stage before cartilage erosion and osteoclast formation, and co-cultured for 7 d with either embryonic liver or mononuclear phagocytes from various sources. Light and electron microscopic examination of the cultures showed that mineralized matrix-resorbing osteoclasts developed only in bones co-cultured with embryonic liver or with cultured bone marrow mononuclear phagocytes but not when co-cultured with blood monocytes or resident or exudate peritoneal macrophages. Osteoclasts developed from the weakly adherent, but not from the strongly adherent cells of bone marrow cultures, whereas 1,000 rad irradiation destroyed the capacity of such cultures to form osteoclasts. In bone cultures to which no other cells were added, osteoclasts were virtually absent. Bone-resorbing activity of in vitro formed osteoclasts was demonstrated by 45Ca release studies. These studies demonstrate that osteoclasts develop from cells present in cultures of proliferating mononuclear phagocytes and that, at least in our system, monocytes and macrophages are unable to form osteoclasts. The most likely candidates for osteoclast precursor cells seem to be monoblasts and promonocytes.