Using a sheep femoral allograft model we have investigated the cellular and molecular mechanisms associated with non-union of bone allografts. Histomorphometric analysis revealed that allograft non-unions featured both marked increases in osteoclast (OC) numbers and total eroded bone surface as compared to allografts which had undergone direct union. Three distinct cellular layers lying adjacent to the allograft bone surface were identified in all non-union cases. The outer or fibroblastic layer contained an abundance of fibroblasts and connective tissue. Circumscribing this layer was a band of synovial-like cells consisting mainly of large spindle-shaped mononuclear cells mixed with scattered round-shaped mononuclear cells. The third layer, which was directly juxtaposed to the allograft bone surface, consisted predominantly of multinuclear OCs which were positively identified by calcitonin receptor immunohistochemistry. Interestingly, in-situ hybridisation revealed that surrounding synovial-like cells in non-union allografts, expressed abundant gene transcripts for receptor activator NF-kappaB ligand (RANKL), a membrane bound factor critical for both the induction of OC activity and osteoclastogenesis. We propose that excessive bone resorption by host OCs contributes, at least partially, to the failure of bone allografts. The production of RANKL by synovial-like fibroblasts may be the driving force responsible for the elevated generation and activation of OCs. Based on such evidence novel therapeutic strategies for the treatment of non-union bone allografts using anti-bone resorbing agents may be devised.