Paget's disease (PD) is characterized by increased numbers of abnormal osteoclasts (OCLs) that drive exuberant bone formation, but the mechanisms responsible for the increased bone formation remain unclear. We previously reported that OCLs from 70% of PD patients express measles virus nucleocapsid protein (MVNP), and that transgenic mice with targeted expression of MVNP in OCLs (MVNP mice) develop bone lesions and abnormal OCLs characteristic of PD. In this report, we examined if OCL‐derived sphingosine‐1‐phosphate (S1P) contributed to the abnormal bone formation in PD, since OCL‐derived S1P can act as a coupling factor to increase normal bone formation via binding S1P‐receptor‐3 (S1PR3) on osteoblasts (OBs). We report that OCLs from MVNP mice and PD patients expressed high levels of sphingosine kinase‐1 (SphK‐1) compared with wild‐type (WT) mouse and normal donor OCLs. SphK‐1 production by MVNP‐OCLs was interleukin‐6 (IL‐6)‐dependent since OCLs from MVNP/IL‐6−/− mice expressed lower levels of SphK‐1. Immunohistochemistry of bone biopsies from a normal donor, a PD patient, WT and MVNP mice confirmed increased expression levels of SphK‐1 in OCLs and S1PR3 in OBs of the PD patient and MVNP mice compared with normal donor and WT mice. Further, MVNP‐OCLs cocultured with OBs from MVNP or WT mice increased OB‐S1PR3 expression and enhanced expression of OB differentiation markers in MVNP‐OBs precursors compared with WT‐OBs, which was mediated by IL‐6 and insulin‐like growth factor 1 secreted by MVNP‐OCLs. Finally, the addition of an S1PR3 antagonist (VPC23019) to WT or MVNP‐OBs treated with WT and MVNP‐OCL‐conditioned media (CM) blocked enhanced OB differentiation of MVNP‐OBs treated with MVNP‐OCL‐CM. In contrast, the addition of the SIPR3 agonist, VPC24191, to the cultures enhanced osterix and Col‐1A expression in MVNP‐OBs treated with MVNP‐OCL‐CM compared with WT‐OBs treated with WT‐OCL‐CM. These results suggest that IL‐6 produced by PD‐OCLs increases S1P in OCLs and S1PR3 on OBs, to increase bone formation in PD. Model for the effects of sphingosine kinase‐1/sphingosine‐1‐phosphate/S1P‐receptor‐3 (SphK‐1/S1P/S1PR3) in abnormal bone remodeling in Paget's disease (PD). Measles virus nucleocapsid protein (MVNP) in PD‐osteoclasts (OCLs) induces interleukin‐6 (IL‐6), which upregulates insulin‐like growth factor 1 (IGF‐1) and Sphk1. SphK‐1 enhances S1P levels in OCLs, and IL‐6 and IGF‐1 increase S1PR3 on osteoblast (OBs). S1P then increases OB differentiation and bone formation via enhanced S1PR3 expression on OBs.