An in vitro culture model of osteoclast differentiation is described which is derived from homogeneous populations of chick yolk sac and peripheral blood macrophages. In primary cultures, both types of macrophages undergo a proliferative phase, become quiescent after reaching high cell densities, then aggregate and eventually form large multinucleated giant cells (MNGCs), presumably by fusion. These MNGCs can be characterized as premature osteoclasts on the basis of several morphological and biochemical criteria, although they do not undergo the final differentiation step rendering them competent to resorb bone in vitro. Clonal analysis of single cell-derived colonies indicates that all macrophages have the potential to differentiate into these osteoclast-like cells under these culture conditions. Both retinoic acid and 1,25-dihydroxyvitamin D3 [1,25-(OH)2D3] modulate macrophage growth, but in an antagonistic manner. Although retinoic acid strongly promotes macrophage proliferation and impedes MNGC formation, 1,25-(OH)2D3 inhibits proliferation and changes the kinetics of MNGC formation. Combination experiments reveal that the proliferative signals induced by retinoic acid can override the signal to differentiate induced by 1,25-(OH)2D3. Our results indicate that even though retinoic acid and vitamin D3 act through homologous receptors, they have dramatically opposing effects on macrophage differentiation toward osteoclast progenitors.