Interferon γ (IFN-γ) is a cytokine produced locally in the bone microenvironment by cells of immune origin as well as mesenchymal stem cells. However, its role in normal bone remodeling is still poorly understood. In this study we first examined the consequences of IFN-γ ablation in vivo in C57BL/6 mice expressing the IFN-γ receptor knockout phenotype (IFNγR1−/−). Compared with their wild-type littermates (IFNγR1+/+), IFNγR1−/− mice exhibit a reduction in bone volume associated with significant changes in cortical and trabecular structural parameters characteristic of an osteoporotic phenotype. Bone histomorphometry of IFNγR1−/− mice showed a low-bone-turnover pattern with a decrease in bone formation, a significant reduction in osteoblast and osteoclast numbers, and a reduction in circulating levels of bone-formation and bone-resorption markers. Furthermore, administration of IFN-γ (2000 and 10,000 units) to wild-type C57BL/6 sham-operated (SHAM) and ovariectomized (OVX) female mice significantly improved bone mass and microarchitecture, mechanical properties of bone, and the ratio between bone formation and bone resorption in SHAM mice and rescued osteoporosis in OVX mice. These data therefore support an important physiologic role for IFN-γ signaling as a potential new anabolic therapeutic target for osteoporosis. © 2011 American Society for Bone and Mineral Research.