Prostate cancer (PCa) preferentially metastasizes to bone resulting in osteoblastic lesions with underlying osteolytic activities. The mechanisms through which PCa cells promote osteolytic activities and subsequent osteoblastic bone formation remain poorly understood. Parathyroid hormone‐related protein (PTHrP), produced by bone cells and PCa, binds to receptors on osteoblasts and stimulates bone formation and resorption. We have previously reported that MCP‐1 acts as a paracrine and autocrine factor for PCa progression. However, the role of PTHrP in regulating MCP‐1 expression in bone microenvironment, specifically by human bone marrow endothelial cells (HBME) and osteoblasts (hFOB), as well as by PCa cells, has not been studied. Accordingly, we first determined the effect of PTHrP on MCP‐1 expression by bone cells and PCa cells. PTHrP induced both MCP‐1 protein and mRNA expression by HBME and hFOB cells, but not by PCa LNCaP and PC3 cells. To further determine the mechanisms of PTHrP‐induced MCP‐1 transcription, analysis of the MCP‐1 promoter was performed. MCP‐1 promoter activity was induced by PTHrP. Both C/EBPβ and NF‐κB binding elements are required for PTHrP‐induced MCP‐1 transcription. Finally, when a constitutively‐active PTH receptor construct was transfected into HBME and hFOB cells, MCP‐1 production was increased. The conditioned media collected from these cells induced osteoclast differentiation and PC3 proliferation and invasion in vitro. These inductions were partially inhibited by MCP‐1 neutralizing antibody. We conclude that PTHrP‐induced MCP‐1 production by HBME and hFOB cells promotes osteoclast differentiation in vitro and such induction may play a critical role in PCa development in the bone microenvironment. © 2007 Wiley‐Liss, Inc.