We have recently identified and characterized the human osteoclast (OCL) inhibitory peptide-1 (OIP-1/hSca), a member of Ly-6 gene family. OIP-1 is an important physiologic regulator of OCL development and bone resorption activity. To determine the molecular mechanisms that regulate OIP-1 gene expression in OCL precursor cells, we isolated and characterized the OIP-1/hSca gene (2 Kb) promoter sequence. IFN-gamma (50 ng/ml) treatment of RAW 264.7 macrophage cells transfected with OIP-1 gene (-1 to -1988 bp relative to transcription start site) promoter-luciferase reporter plasmid demonstrated a significant (4 fold) increase in OIP-1 gene promoter activity. Sequence analysis of OIP-1 gene promoter region further identified a potential Stat-1 binding motif at -1629 to -1639 bp position. Stat-1 specific inhibitor, fludarabine (50 muM) abolished IFN-gamma stimulated OIP-1 gene promoter activity. Electrophoretic mobility shift assay (EMSA) further confirmed activated Stat-1 binding to the OIP-1 gene promoter sequence suggesting that IFN-gamma regulates OIP-1 gene expression in OCL precursor cells through a Stat-1 dependent signaling pathway. We further show that knock-down of TRADD enhances IFN-gamma signaling to increase OIP-1 gene expression in OCL precursor cells. These results should provide insights into the molecular control of OIP-1 gene expression and inhibition of OCL activity in the bone microenvironment.