Estrogen deficiency in menopause is a major cause of osteoporosis in women. Estrogen acts to maintain the appropriate ratio between bone‐forming osteoblasts and bone‐resorbing osteoclasts in part through the induction of osteoclast apoptosis. Recent studies have suggested a role for Fas ligand (FasL) in estrogen‐induced osteoclast apoptosis by an autocrine mechanism involving osteoclasts alone. In contrast, we describe a paracrine mechanism in which estrogen affects osteoclast survival through the upregulation of FasL in osteoblasts (and not osteoclasts) leading to the apoptosis of pre‐osteoclasts. We have characterized a cell‐type‐specific hormone‐inducible enhancer located 86 kb downstream of the FasL gene as the target of estrogen receptor‐alpha induction of FasL expression in osteoblasts. In addition, tamoxifen and raloxifene, two selective estrogen receptor modulators that have protective effects in bone, induce apoptosis in pre‐osteoclasts by the same osteoblast‐dependent mechanism. These results demonstrate that estrogen protects bone by inducing a paracrine signal originating in osteoblasts leading to the death of pre‐osteoclasts and offer an important new target for the prevention and treatment of osteoporosis.