Increased osteoclastic bone resorption leads to periarticular erosions and systemic osteoporosis in RA patients. Although a great deal is known about how osteoclasts differentiate from precursors and resorb bone, the identity of an osteoclast precursor (OCP) population in vivo and its regulatory role in RA remains elusive. Here, we report the identification of a CD11b–/loLy6Chi BM population with OCP activity in vitro and in vivo. These cells, which can be distinguished from previously characterized precursors in the myeloid lineage, display features of both M1 and M2 monocytes and expand in inflammatory arthritis models. Surprisingly, in one mouse model of RA (adoptive transfer of SKG arthritis), cotransfer of OCP with SKG CD4+ T cells diminished inflammatory arthritis. Similar to monocytic myeloid-derived suppressor cells (M-MDSCs), OCPs suppressed CD4+ and CD8+ T cell proliferation in vitro through the production of NO. This study identifies a BM myeloid precursor population with osteoclastic and T cell–suppressive activity that is expanded in inflammatory arthritis. Therapeutic strategies that prevent the development of OCPs into mature bone-resorbing cells could simultaneously prevent bone resorption and generate an antiinflammatory milieu in the RA joint.