Osteoclast inhibitory peptide-1 (OIP) is an autocrine/paracrine inhibitor of osteoclast differentiation, and mice that overexpress OIP-1 in osteoclast lineage cells develop an osteopetrosis bone phenotype. In this study, we show that OIP-1 binding to the Fc gamma receptor IIB (Fc gammaRIIB) inhibits osteoclast differentiation. Confocal microscopy revealed colocalization of OIP-1 with Fc gammaRIIB in osteoclasts, and we observed that OIP-1 carboxy-terminal GPI-linked peptide forms a 1:1 complex with recombinant Fc gammaRIIB protein with an affinity binding of a dissociation constant of approximately 4 microm. Immunoreceptor tyrosine-based activation motif (ITAM)-bearing adapter proteins (FcR gamma and DNAX-activating protein of molecular mass 12 kDa) are critical for osteoclast development, and OIP-1 transgenic mouse-derived preosteoclast cells demonstrated suppression (6-fold) of ITAM phosphorylation of FcR gamma but not DNAX-activating protein of molecular mass 12 kDa. Interestingly, these preosteoclast cells demonstrated increased levels (4-fold) of immunoreceptor tyrosine-based inhibitory motif phosphorylation of Fc gammaRIIB and Src homology 2-domain-containing proteins tyrosine phosphatase 1 activation. Further, OIP-1 mouse-derived preosteoclasts cells demonstrated inhibition of spleen tyrosine kinase activation (4.5-fold), compared with wild-type mice. These results suggest that cross-regulation of immunoreceptor tyrosine-based inhibitory motif and ITAM bearing Fc receptors may play a role in OIP-1 suppression of spleen tyrosine kinase activation and inhibition of osteoclast differentiation. Thus, OIP-1 is an important physiologic regulator of osteoclast development and may have therapeutic utility for bone diseases with high bone turnover.