NFATc1 and NFATc2 are functionally redundant in the immune system, but it was suggested that NFATc1 is required exclusively for differentiation of osteoclasts in the skeletal system. Here we provide genetic evidence that NFATc1 is essential for osteoclast differentiation in vivo by adoptive transfer of NFATc1(-/-) hematopoietic stem cells to osteoclast-deficient Fos(-/-) mice, and by Fos(-/-) blastocyst complementation, thus avoiding the embryonic lethality of NFATc1(-/-) mice. However, in vitro osteoclastogenesis in NFATc1-deficient cells was rescued by ectopic expression of NFATc2. The discrepancy between the in vivo essential role of NFATc1 and the in vitro effect of NFATc2 was attributed to selective autoregulation of the NFATc1 gene by NFAT through its promoter region. This suggested that an epigenetic mechanism contributes to the essential function of NFATc1 in cell lineage commitment. Thus, this study establishes that NFATc1 represents a potential therapeutic target for bone disease and reveals a mechanism that underlies the essential role of NFATc1 in bone homeostasis.