We describe a new model of myeloma bone disease in which beta2m NOD/SCID mice injected with KMS-12-BM cells develop medullary disease after tail vein administration. Micro-computed tomography analysis demonstrated significant bone loss in the tibiae and vertebrae of diseased animals compared to controls, with loss of cortical bone (P<0.01), as well as trabecular bone volume, thickness and number (P<0.05 for all). Bone marrow of diseased animals demonstrated an increase in osteoclasts (P<0.01) and reduction in osteoblasts (P<0.01) compared to control animals. Both bone loss and osteoclast increase correlated with the degree of disease involvement. Mesenchymal stem cells (MSCs) were lentivirally transduced to express human osteoprotegerin (hOPG). Systemic administration of OPG expressing MSC reduced osteoclast activation (P<0.01) and trabecular bone loss in the vertebrae (P<0.05) and tibiae of diseased animals, to levels comparable to non-diseased controls. Because of its predominantly medullary involvement and quantifiable parameters of bone disease, the KMS-12-BM xenogeneic model provides unique opportunities to test therapies targeted at the bone marrow microenvironment.