Chronic arthritis typically leads to loss of periarticular bone, which results from an imbalance between bone formation and bone resorption. Recent research has focused on the role of osteoclastogenesis and bone resorption in arthritis. Bone resorption cannot be observed isolated, however, since it is closely linked to bone formation and altered bone formation may also affect inflammatory bone loss. To simultaneously assess bone resorption and bone formation in inflammatory arthritis, we developed a histological technique that allows visualization of osteoblast function by in-situ hybridization for osteocalcin and osteoclast function by histochemistry for tartrate-resistant acid phosphatase. Paw sections from human tumor necrosis factor transgenic mice, which develop an erosive arthritis, were analyzed at three different skeletal sites: subchondral bone erosions, adjacent cortical bone channels, and endosteal regions distant from bone erosions. In subchondral bone erosions, osteoclasts were far more common than osteoblasts. In contrast, cortical bone channels underneath subchondral bone erosions showed an accumulation of osteoclasts but also of functional osteoblasts resembling a status of high bone turnover. In contrast, more distant skeletal sites showed only very low bone turnover with few scattered osteoclasts and osteoblasts. Within subchondral bone erosions, osteoclasts populated the subchondral as well as the inner wall, whereas osteoblasts were almost exclusively found along the cortical surface. Blockade of tumor necrosis factor reversed the negative balance of bone turnover, leading to a reduction of osteoclast numbers and enhanced osteoblast numbers, whereas the blockade of osteoclastogenesis by osteoprotegerin also abrogated the osteoblastic response. These data indicate that bone resorption dominates at skeletal sites close to synovial inflammatory tissue, whereas bone formation is induced at more distant sites attempting to counter-regulate bone resorption.