Kanzo-bushi-to (KBT) is a traditional Japanese herbal medicine (Kampo medicine), which is used in Japan to treat rheumatoid arthritis. In the present study, we investigated the suppressive effect of KBT on collagen-induced arthritis (CIA) and further studied the underlying mechanism. CIA was induced in male DBA/1J mice by immunization with bovine type II collagen, followed by a booster injection 21 d later. KBT was given at a dose of 430 mg/kg/d from three days before the first immunization to the end of the experiment. KBT suppressed CIA development effectively and further protected focal bone erosion and bone destruction as evidenced by the reduced histological score. Histochemical examination revealed that KBT decreased TRAP-positive cells at the synovium-bone interface and at the sites of focal bone erosion, coincident with the findings that RANKL/OPG mRNA ratio was significantly reduced by KBT treatment. KBT also decreased mRNA levels of M-CSF and iNOS in joints and of iNOS in peritoneal macrophages. In conclusion, KBT prevented osteoclast generation by decreasing RANKL/OPG ratio and M-CSF mRNA levels, resulting in reduction in bone erosion and destruction. In addition, KBT has anti-inflammatory effect such as the suppression of iNOS expression in peritoneal macrophages and joints of CIA mice. These finding suggests that KBT is a potential new therapeutic agent for the treatment of RA.