Micro-RNAs (miRNAs) are important in regulating cell fate determination because many of their target mRNA transcripts are engaged in cell proliferation, differentiation, and apoptosis. DGCR8, Dicer, and Ago2 are essential factors for miRNA homeostasis. Here we show that these three factors have critical roles in osteoclast differentiation and function. Gene silencing of DGCR8, Dicer, or Ago2 by small interfering RNA revealed global inhibition of osteoclast transcription factor expression and function, decreased osteoclastogenesis, and decreased bone resorption in vitro. In vivo, CD11b+-cre/Dicer-null mice had mild osteopetrosis caused by decreased osteoclast number and bone resorption. These results suggest that miRNAs play important roles in differentiation and function of osteoclasts in vitro and in vivo. We found a novel mechanism mediating these results in which PU.1, miRNA-223, NFI-A, and the macrophage colony-stimulating factor receptor (M-CSFR) are closely linked through a positive feedback loop. PU.1 stimulates miRNA-223 expression, and this up-regulation is implicated in stimulating differentiation and function of osteoclasts through negative regulation of NFI-A levels. Down-regulation of NFI-A levels is important for expression of the M-CSFR, which is critical for osteoclast differentiation and function. NFI-A overexpression decreased osteoclast formation and function with down-regulation of M-CSFR levels. Forced expression of the M-CSFR in M-CSF-dependent bone marrow macrophages from Dicer-deficient mice rescued osteoclast differentiation with up-regulation of PU.1 levels. Our studies provide new molecular mechanisms controlling osteoclast differentiation and function by the miRNA system and specifically by miRNA-223, which regulates NFI-A and the M-CSFR levels.