We previously identified gamma-glutamyltransferase (GGT) by expression cloning as a factor inducing osteoclast formation in vitro. To examine its pathogenic role in vivo, we generated transgenic mice that overexpressed GGT in a tissue-specific manner utilizing the Cre-loxP recombination system. Systemic as well as local production of GGT accelerated osteoclast development and bone resorption in vivo by increasing the sensitivity of bone marrow macrophages to receptor activator of nuclear factor-kappaB ligand, an essential cytokine for osteoclastogenesis. Mutated GGT devoid of enzyme activity was as potent as the wild-type molecule in inducing osteoclast formation, suggesting that GGT acts not as an enzyme but as a cytokine. Recombinant GGT protein increased receptor activator of nuclear factor-kappaB ligand expression in marrow stromal cells and also stimulated osteoclastogenesis from bone marrow macrophages at lower concentrations. Thus, GGT is implicated as being involved in diseases characterized by accelerated osteoclast development and bone destruction and provides a new target for therapeutic intervention.