Macrophage colony-stimulating factor (M-CSF) influences the proliferation and survival of mononuclear phagocytes through the receptor CSF-1R. The adaptor protein DAP12 is critical for the function of mononuclear phagocytes. DAP12-mutant mice and humans have defects in osteoclasts and microglia, as well as brain and bone abnormalities. Here we show DAP12 deficiency impaired the M-CSF-induced proliferation and survival of macrophages in vitro. DAP12-deficient mice had fewer microglia in defined central nervous system areas, and DAP12-deficient progenitors regenerated myeloid cells inefficiently after bone marrow transplantation. Signaling by M-CSF through CSF-1R induced the stabilization and nuclear translocation of β-catenin, which activated genes involved in the cell cycle. DAP12 was essential for phosphorylation and nuclear accumulation of β-catenin. Our results provide a mechanistic explanation for the many defects of DAP12-deficient mononuclear phagocytes.