Despite evidence that DAP12 regulates osteoclasts, mice lacking the ITAM-bearing protein exhibit only mild osteopetrosis. Alternatively, Dap12 -/- mice, also lacking FcRγ, are severely osteopetrotic, suggesting that FcRγ compensates for DAP12 deficiency in the bone-resorbing polykaryons. Controversy exists, however, as to whether these co-stimulatory molecules regulate differentiation of osteoclasts or the capacity of the mature cell to degrade bone. We find that Dap12-/- osteoclasts differentiate normally when generated on osteoblasts but have a dysfunctional cytoskeleton, impairing their ability to transmigrate through the osteoblast layer and resorb bone. To determine whether the FcRγ co-receptor, OSCAR mediates osteoclast function in the absence of DAP12, we overexpressed OSCAR fused to FLAG (OSCAR-FLAG), in Dap12-/- osteoclasts. OSCAR-FLAG partially rescues the abnormal cytoskeleton of Dap12-/- osteoclasts grown on bone, but not those grown on osteoblasts. Thus, cytoskeletal dysfunction, and not arrested differentiation, is the dominant consequence of DAP12 deficiency in osteoclasts. The failure of osteoblasts to normalize Dap12-/- osteoclasts indicates that functionally relevant quantities of OSCAR ligand do not reside in bone-forming cells.