Dendritic cells (DCs), the mononuclear cells that initiate immune response, and osteoclasts, the multinucleated bone-resorbing cells, are derived from monocyte/macrophage precursor cells. Granulocyte-macrophage colony-stimulating factor and macrophage colony-stimulating factor (M-CSF) reciprocally regulate the differentiation of both lineages in mice. Using human monocyte-derived DCs generated in vitro, we show that immature DCs transdifferentiate into functional osteoclasts (OCs) in the presence of M-CSF and receptor activator of nuclear factor-κB ligand (RANKL). Transdifferentiation operates through fusion of intermediate adherent bipolar fusiform mononuclear cells expressing CD14, CD1a, and RANKL and able to induce RANKL⁺ T-cell proliferation. Surprisingly, DC fusion in vitro is faster and more efficient than monocyte fusion to form multinucleated giant cells. The transdifferentiation process reported here supports the existence of a high cellular plasticity within differentiated myeloid phagocytes. Importantly, this process is greatly enhanced by rheumatoid arthritis synovial fluid and involves proinflammatory cytokines such as interleukin 1 or tumor necrosis factor α, as well as components of the extracellular matrix such as hyaluronic acid. Our data therefore suggest that DC-derived OCs may be directly involved in the osteolytic lesions observed in human inflammatory bone diseases such as rheumatoid arthritis or in particular forms of Langerhans cell histiocytosis, characterized by accumulation of immature skin DCs and chronic lytic bone lesions. (Blood. 2004;104:4029-4037)