Osteoclasts (OCs) are responsible for bone resorption in inflammatory joint diseases. Monocyte chemotactic protein-1 (MCP-1) has been shown to induce differentiation of monocytes to OC precursors, but nothing is known about the underlying mechanisms. Here, we elucidate how MCPIP, induced by MCP-1, mediates this differentiation. Knockdown of MCPIP abolished MCP-1-mediated expression of OC markers, tartrate-resistant acid phosphatase, and serine protease cathepsin K. Expression of MCPIP induced p47(PHOX) and its membrane translocation, reactive oxygen species formation, and induction of endoplasmic reticulum (ER) stress chaperones, up-regulation of autophagy marker, Beclin-1, and lipidation of LC3, and induction of OC markers. Inhibition of oxidative stress attenuated ER stress and autophagy, and suppressed expression of OC markers. Inhibition of ER stress by a specific inhibitor or by knockdown of IRE1 blocked autophagy and induction of OC markers. ER stress inducers, tunicamycin and thapsigargin, induced expression of OC markers. Autophagy inhibition by 3'-methyladenine, LY294002, wortmannin or by knockdown of Beclin-1 or Atg 7 inhibited MCPIP-induced expression of OC markers. These results strongly suggest that MCP-1-induced differentiation of OC precursor cells is mediated via MCPIP-induced oxidative stress that causes ER stress leading to autophagy, revealing a novel mechanistic insight into the role of MCP-1 in OCs differentiation.