Four cases of giant cell reparative granuloma (GCRG) of small bones were analysed in order to determine the pathogenesis of the lesion and the nature of the component mononuclear and multinucleated cells. In cell,cultures, giant cells formed a non-proliferating homogeneous population which expressed features characteristic of the osteoclast phenotype, including leucocyte common antigen, CD68, vitronectin receptor, and tartrate-resistant acid phosphatase. The giant cells were capable of lacunar resorption and their activity was inhibited by calcitonin. In addition to numerous macrophage-like cells, some of which expressed osteoclast phenotypic characteristics, there were also mononuclear stromal cells which proliferated in culture and were alkaline phosphatase-positive; these cells expressed receptor activator of NF-kappaB ligand (RANKL) and were capable of supporting human osteoclast formation from circulating precursors in vitro. These findings suggest that the osteoclast-like giant cells in GCRG of small bones are formed from monocyte/macrophage-like osteoclast precursors which differentiate into osteoclasts under the influence of mononuclear osteoblast-like stromal cells. Copyright (C) 2002 John Wiley Sons, Ltd.