The regulation of osteoclast differentiation in the bone microenvironment is critical for normal bone remodeling, as well as for various human bone diseases. Over the last decade, our knowledge of how osteoclast differentiation occurs has progressed rapidly. We highlight some of the major advances in understanding how cell signaling and transcription are integrated to direct the differentiation of this cell type. These studies used genetic, molecular, and biochemical approaches. Additionally, we summarize data obtained from studies of osteoclast differentiation that used the functional genomic approach of global gene profiling applied to osteoclast differentiation. This genomic data confirms results from studies using the classical experimental approaches and also may suggest new modes by which osteoclast differentiation and function can be modulated. Two conclusions that emerge are that osteoclast differentiation depends on a combination of fairly ubiquitously expressed transcription factors rather than unique osteoclast factors, and that the overlay of cell signaling pathways on this set of transcription factors provides a powerful mechanism to fine tune the differentiation program in response to the local bone microenvironment.