Osteolysis resulting in extensive bone damage is a major clinical manifestation of patients with multiple myeloma (MM). The mechanisms of bone resorption in MM are incompletely understood. The final pathway is the generation of activated osteoclasts within bone marrow (BM) microenvironment. To investigate the mechanisms of bone resorption in MM we established an experimental system that, including bone marrow (BM) stromal cells and bone slices, closely mimicks in vitro the in vivo BM microenvironment. Peripheral blood mononuclear cells (PBMC) from nine patients with MM, three monoclonal gammopathy of undetermined significance (MGUS), and nine normal controls were cultured in this system. PBMC from patients with aggressive and bone devastating MM gave rise to multi-nucleated cells with the morphology and phenotype of osteoclasts. These cells induced bone resorption in vitro which was inhibited by the addition of calcitonin. No bone resorption was observed in cultures of PBMC from patients with MM and limited bone damage, with MGUS and from normal subjects. These findings indicate that patients with aggressive MM have a population of circulating precursors that develop into functionally active osteoclast-like cells once they come in contact with the BM microenvironment. These cells may contribute to the wide-spread and generalized bone erosion observed in the patients.