It has been suggested that the stromal element of human osteoclastomas contains osteoblastic cells. In this study, we demonstrate that osteoclast‐depleted, passaged stromal cells express alkaline phosphatase and osteocalcin in vitro and form mineralized nodules under appropriate culture conditions. In addition, we describe a model in which severe combined immunodeficient (SCID) mice were used to support the differentiation of these putative human osteoblast progenitors in vivo. Lesions formed from human stromal cells were identified using the OK^a blood group antigen and human procollagen type I antibodies. By 21 days, the lesion was a complete bone unit: a fully mineralized cortex, remodeling trabeculae, and a highly cellular marrow space. Stromal cells derived from six out of seven osteoclastomas produced identical lesions. Further studies have demonstrated that the capacity of the osteoclastoma‐derived stromal cells to form bone in vivo and in vitro is passage dependent; early passages were osteogenic in both model systems, while later passages were not. In conclusion, we have developed a model in which the osteogenic nature of cells can be confirmed in vivo. Furthermore, human osteoclastoma‐derived stromal cells provide a source of these osteogenic cells to study human osteoblast differentiation, both in vivo and in vitro.