Although osteoclasts are derived from hematopoietic cells, the exact identity of their precursors and the mechanism for their recruitment onto bone surfaces remain unclear. We wished to study their differentiation in the fetal rat calvaria and to locate its source of osteoclast precursor cells. Osteoclasts were detected by neutral red staining or cytochemical reaction for acid phosphatase of intact bone (cell number and area measured by computerized image analysis) or in cryostat sections of bone (enzyme activity measured by quantitative cytochemistry). Histology of semithin sections of fixed bones was also examined. The 19 day calvariae contained few mature osteoclasts. After 48 h culture on gels of type 1 collagen (1.5 mg/ml) supplemented with 5 mM calcium beta-glycerophosphate, 10 mM proline, and 2 micrograms/ml ascorbic acid, numerous large osteoclasts were seen on their endocranial surfaces. In contrast, cell morphology and enzyme activity deteriorated in bones cultured in liquid medium. The cells that formed in vitro rapidly responded to calcitonin by contraction. Stripping of endocranial membranes from the calvariae prevented osteoclast formation in culture, but these cells were seen when "stripped" bones had been cocultured with their membranes for 48 h or with intact 16 day calvariae (well before the onset of osteogenesis). Few osteoclasts were found when an 0.22 micron filter was inserted between the stripped calvaria and the endocranial membranes. We conclude that the endocranial membranes, which contain the meningeal blood vessels, are a major source of osteoclast precursors and that these cells are present in calvarial tissue even before the onset of osteogenesis.