CC-4047, an immunomodulatory analog of thalidomide, inhibits multiple myeloma with unknown effects on the human osteoclast lineage. Early osteoclast progenitors are of hematopoietic origin and differentiate into mature bone resorbing multinucleated osteoclasts. We investigated the effects of CC-4047 and thalidomide on human osteoclastogenesis, using in vitro receptor activator of NFκ-B ligand/macrophage colony-stimulating factor–stimulated bone marrow cell cultures. Treating bone marrow cultures with CC-4047 for 3 weeks decreased osteoclast formation accompanied by complete inhibition of bone resorption. The inhibitory effect was similar when cultures were treated for 3 weeks or for only the first week (90% inhibition), indicating that CC-4047 inhibits early stages of osteoclast formation. Inhibition of osteoclastogenesis by CC-4047 was mediated by a shift of lineage commitment to granulocyte colony-forming units at the expense of granulocyte-macrophage colony-forming units. Further studies revealed that this shift in lineage commitment was mediated through down-regulation of PU.1. Treatment with thalidomide resulted in significantly less potent inhibition of osteoclast formation and bone resorption. These results provide evidence that CC-4047 blocks osteoclast differentiation during early phases of osteoclastogenesis. Therefore, CC-4047 might be a valuable drug for targeting both tumors and osteoclastic activity in patients with multiple myeloma and other diseases associated with osteolytic lesions.