We determined that sFRP-1 mRNA was differentially expressed by osteoblast/stromal cell lines and that sFRP-1 neutralizing antibodies and siRNA complementary to sFRP-1 coding sequence enhanced, while recombinant sFRP-1 inhibited, osteoclast formation. In studying the mechanism of action for sFRP-1, we found that sFRP-1 could bind recombinant RANKL. These results suggest potential cross-talk between Wnt and RANKL pathways. Osteoclast formation in normal bone remodeling requires the presence of osteoblast lineage cells that express RANKL and macrophage-colony-stimulating factor (M-CSF), which interact with their cognate receptors on the osteoclast precursor. We identified secreted Frizzled-related protein-1 (sFRP-1), which is known to bind to Wnt and inhibit the Wnt signaling pathway, as an osteoblast-derived factor that impinges on osteoclast formation and activity. Differential display of mRNA from osteoblast lineage cell lines established sFRP-1 to be highly expressed in an osteoclast supporting cell line. sFRP-1 expression in bone was determined by in situ hybridization, and the effects of sFRP-1 on osteoclast formation were determined using a neutralizing antibody, siRNA, for sFRP-1 and recombinant protein. In situ hybridization revealed sFRP-1 mRNA expression in osteoblasts and chondrocytes in murine bone. sFRP-1 mRNA expression could be elevated in calvarial primary osteoblasts in response to prostaglandin E2 (PGE2) or interleukin (IL)-11, whereas many other osteotropic agents (e.g., IL-1, IL-6, calcitrol, parathyroid hormone) were without any effect. In vitro assays of osteoclast formation established sFRP-1 to be an inhibitor of osteoclast formation. Neutralizing antibodies against sFRP-1 enhanced TRACP+ mononuclear and multinuclear osteoclast formation (3- and 2-fold, respectively) in co-cultures of murine osteoblasts with spleen cells, whereas siRNA complementary to sFRP-1 coding sequence significantly enhanced osteoclast formation in co-cultures of KUSA O (osteoblast/stromal cell line) and bone marrow cells, cultured in the presence of PGE2 and 1,25(OH)2 vitamin D3. Recombinant sFRP-1 dose-dependently inhibited osteoclast formation in osteoblast/spleen co-cultures, RANKL + M-CSF-treated splenic cultures, and RANKL-treated RAW264.7 cell cultures, indicating a direct action of sFRP-1 on hematopoietic cells. Consistent with this, sFRP-1 was found to bind to RANKL in ELISAs. sFRP-1 is expressed by osteoblasts and inhibits osteoclast formation. While sFRP-1 activity might involve the blocking of endogenous Wnt signaling, our results suggest that, alternatively, it could be because of direct binding to RANKL. This study describes a new mechanism whereby osteoblasts regulate osteoclastogenesis through the expression and release of sFRP-1.