Interferon-γ (IFN-γ) has been shown to inhibit interleukin-1 (IL-1) and tumor necrosis factor α (TNF-α) stimulated bone resorption by strongly stimulating nitric oxide (NO) synthesis. Here we studied the mechanisms underlying this inhibition. Osteoclasts were generated in 10-day cocultures of mouse osteoblasts and bone marrow cells and the effect of cytokine-induced NO on osteoclast formation and activity was determined. Stimulation of the cocultures with IL-1β, TNF-α and IFN-γ markedly enhanced NO production by 50- to 70-fold, and this was found to be derived predominantly from the osteoblast cell layer. When high levels of NO were induced by cytokines during early stages of the coculture, osteoclast formation was virtually abolished and bone resorption markedly inhibited. Cytokine stimulation during the latter stages of coculture also resulted in inhibition of bone resorption, but here the effects were mainly due to an inhibitory effect on osteoclast activity. At all stages, however, the inhibitory effects of cytokines on osteoclast formation and activity were blocked by the NO-synthase inhibitor L-NMMA. Further investigations suggested that the NO-mediated inhibition of osteoclast formation was due in part to apoptosis of osteoclast progenitors. Cytokine stimulation during the early stage of the culture caused a large increase in apoptosis of bone marrow cells, and these effects were blocked by L-NMMA and enhanced by NO donors. We found no evidence of apoptosis in osteoblasts exposed to high levels of cytokine-induced NO at any stage in the culture, however, or of apoptosis affecting mature osteoclasts exposed to high levels of NO, suggesting that immature cells in the bone marrow compartment are most sensitive to NO-induced apoptosis. In summary, these studies identify NO as a potentially important osteoblast-osteoclast coupling factor which has potent inhibitory effects on bone resorption. These actions, in turn, are mediated by inhibition of osteoclast formation probably due to NO-induced apoptosis of osteoclast progenitors and by inhibition of the resorptive activity of mature osteoclasts.