Osteoclasts arise from macrophage progenitors in bone marrow (BMMs) as a consequence of signaling events elicited by M-CSF and receptor activator of NF-κB ligand, acting on their unique receptors, via c-Fms and receptor activator of NF-κB. Both receptors activate the PI3K and MAPK pathways, which promote cell proliferation and survival. SHIP1 is essential, for normal bone homeostasis, as mice lacking the protein exhibit osteoporosis resulting from increased numbers of hyper-resorptive osteoclasts. In this study, we show that BMMs from SHIP1 null mice respond to M-CSF, but not receptor activator of NF-κB ligand, by increasing Akt activation. In consequence, there are up-regulation of D-type cyclins, down-regulation of the cyclin-dependent kinase inhibitor p27, and, therefore, increased phosphorylation of the retinoblastoma protein and cell proliferation. Surprisingly, cell survival of wild-type and knockout BMMs is unaltered. Finally, osteoclastogenesis and periarticular bone erosions are markedly increased in SHIP1-/- mice with inflammatory arthritis, a condition characterized by increased M-CSF expression. The SHIP1/Akt pathway therefore suppresses bone loss in pathological states associated with an excess of the cytokine.