Annexin II (AXII), a calcium-dependent phospholipid-binding protein, has been recently found to be an osteoclast (OCL) stimulatory factor that is also secreted by OCLs. In vitro studies showed that AXII induced OCL formation and bone resorption. However, the mechanism of action by which AXII acts as a soluble extracellular protein to induce OCL formation is unknown. In this paper, we demonstrate that AXII gene expression is upregulated by 1,25-dihydroxyvitamin D3 [1, 25-(OH)2D3] and that addition of AXII significantly increased OCL-like multinucleated cell formation. Time-course studies suggested that AXII acted on the proliferative stage of OCL precursors and that AXII increased thymidine incorporation in OCL precursors. Moreover, AXII enhanced the growth of CFU-GM, the earliest identifiable OCL precursor, when bone marrow cultures were treated with low concentrations of GM-CSF. This capacity of AXII to induce OCL precursor proliferation was due to induction of GM-CSF expression, because the addition of neutralizing antibodies to GM-CSF blocked the stimulatory effect of AXII on OCL formation. RT-PCR analysis using RNA from highly purified subpopulations of marrow cells demonstrated that T cells, especially CD4(+) T cells, produced GM-CSF in response to AXII. Furthermore, FACS(R) analysis of T-cell subpopulations treated with fluorescein-labeled AXII suggested that the CD4(+), but not CD8(+), subpopulation of T cells express an AXII receptor. Taken together, these data suggest that AXII stimulates OCL formation by activating T cells through a putative receptor to secrete GM-CSF. GM-CSF then expands the OCL precursor pool to enhance OCL formation.