Cytokines are protein messengers that act to modulate the differentiation or activation of their target cells. Bone marrow macrophages can become activated tissue macrophages, dendritic cells, or osteoclasts depending on to which cytokines they are exposed. However, one cytokine can often induce divergent outcomes, suggesting that other signals are needed to establish the specificity of the result. We hypothesize that these signals may derive from the local environment and serve to prime cells to respond toward a specific outcome. Here, it is shown that the cytokine TNF-alpha is capable of affecting the fate of macrophages by upregulating the NADase CD38. CD38 upregulation primes macrophages, such that signals induced by inflammatory stimuli are augmented, while those leading to osteoclast formation are inhibited. We show that TNF-alpha-induced CD38 expression negatively affects the expression of osteoclast markers, while it enhances inflammatory gene expression by decreasing ERK1/2 phosphorylation and increasing NF-kappaB activation. Furthermore, it is shown that CD38 may reduce osteoclastogenesis and increase inflammatory gene induction by decreasing cellular histone deacetylase activity. These results provide a demonstration of how a cytokine can prime cells to differentiate toward a certain lineage or acquire enhanced activation characteristics. Since CD38 is an ectoenzyme, we suggest that the modulation of extracellular NAD(+) metabolism likely serves as a unique mechanism to coordinate the fate of cells within a local environment.