TRACP is a lysosomal enzyme found in diverse tissues, where it is expressed in dendritic cells as well as osteoclasts and macrophages. To investigate the function of TRACP in vivo, we have generated mice in which the gene-encoding TRACP has been selectively disrupted by targeted homologous recombination in murine embryonic stem cells. Homozygous TRACP “knockout” mice have progressive foreshortening and deformity of the long bones and axial skeleton suggesting a role for TRACP in endochondral ossification. There is increased mineralization reflecting a mild osteopetrosis caused by reduced osteoclast modeling activity. These knockout mice also display an impairment of macrophage function with abnormal immunomodulatory cytokine responses. Superoxide formation and nitrite production were enhanced in stimulated macrophages lacking TRACP as was the secretion of the proinflammatory cytokines TNF-α, interleukin (IL)-1β, and IL-12. TRACP knockout mice showed delayed clearance of the microbial pathogen Staphylococcus aureus after sublethal intraperitoneal inoculation. The macrophages lacking TRACP showed an increase in tartrate-sensitive lysosomal acid phosphatase activity (LAP). The TRACP knockout mice were bred with mice lacking LAP. Mice lacking both TRACP and LAP had even shorter bones than the TRACP single knockouts. Osteopontin, identical to the T-cell cytokine η-1, accumulated adjacent to actively resorbing osteoclasts suggesting that both phosphatases are important for processing this protein. We propose that TRACP may be an important regulator of osteopontin/η-1 activity common to both the immune system and skeleton.