Bone homeostasis requires a delicate balance between the activities of bone-resorbing osteoclasts and bone-forming osteoblasts. Various molecules coordinate osteoclast function with that of osteoblasts; however, molecules that mediate osteoclast-osteoblast interactions by simultaneous signal transduction in both cell types have not yet been identified. Here we show that osteoclasts express the NFATc1 target gene Efnb2 (encoding ephrinB2), while osteoblasts express the receptor EphB4, along with other ephrin-Eph family members. Using gain- and loss-of-function experiments, we demonstrate that reverse signaling through ephrinB2 into osteoclast precursors suppresses osteoclast differentiation by inhibiting the osteoclastogenic c-Fos-NFATc1 cascade. In addition, forward signaling through EphB4 into osteoblasts enhances osteogenic differentiation, and overexpression of EphB4 in osteoblasts increases bone mass in transgenic mice. These data demonstrate that ephrin-Eph bidirectional signaling links two major molecular mechanisms for cell differentiation--one in osteoclasts and the other in osteoblasts--thereby maintaining bone homeostasis.