The P2X₇ nucleotide receptor is an ATP-gated ion channel expressed widely in cells of hematopoietic origin. Our purpose was to explore the involvement of the P2X₇ receptor in bone development and remodeling by characterizing the phenotype of mice genetically modified to disrupt the P2X₇ receptor [knockout (KO)]. Femoral length did not differ between KO and wild-type (WT) littermates at 2 or 9 months of age, indicating that the P2X₇ receptor does not regulate longitudinal bone growth. However, KO mice displayed significant reduction in total and cortical bone content and periosteal circumference in femurs, and reduced periosteal bone formation and increased trabecular bone resorption in tibias. Patch clamp recording confirmed expression of functional P2X₇ receptors in osteoclasts from WT but not KO mice. Osteoclasts were present in vivo and formed in cultures of bone marrow from KO mice, indicating that this receptor is not essential for fusion of osteoclast precursors. Functional P2X₇ receptors were also found in osteoblasts from WT but not KO mice, suggesting a direct role in bone formation. P2X₇ receptor KO mice demonstrate a unique skeletal phenotype that involves deficient periosteal bone formation together with excessive trabecular bone resorption. Thus, the P2X₇ receptor represents a novel therapeutic target for the management of skeletal disorders such as osteoporosis.