Giant cell tumor of bone (GCTB) is an aggressive osteolytic bone tumor characterized by the within-tumor presence of osteoclast-like multinucleated giant cells (MGCs), which are induced by the neoplastic stromal cells and lead to extensive bone destruction. However, the underlying mechanism of the pathological process of osteoclastogenesis in GCTB is poorly understood. Here we show that the proteoglycan Serglycin (SRGN) secreted by neoplastic stromal cells plays a crucial role in the formation of MGCs and tumorigenesis in GCTB. Upregulated SRGN expression and secretion are observed in GCTB tumor cells and patients. Stromal-derived SRGN promotes osteoclast differentiation from monocytes. SRGN knockdown in stromal cells inhibits tumor growth and bone destruction in a patient-derived orthotopic xenograft model of mice. Mechanistically SRGN interacts with CD44 on the cell surface of monocytes and thus activates focal adhesion kinase (FAK), leading to osteoclast differentiation. Importantly, blocking CD44 with a neutralizing antibody reduces the number of MGCs and suppresses tumorigenesis in vivo. Overall, our data reveal a mechanism of MGC induction in GCTB and support CD44-targeting approaches for GCTB treatment.