Rheumatoid arthritis is a chronic inflammatory disease characterized by synovial hyperplasia, inflammatory cell infiltration, irreversible cartilage and bone destruction, and exuberant coagulation system activity within joint tissue. Here, we demonstrate that the coagulation transglutaminase, factor XIII (fXIII), drives arthritis pathogenesis by promoting local inflammatory and tissue degradative and remodeling events. All pathological features of collagen-induced arthritis (CIA) were significantly reduced in fXIII-deficient mice. However, the most striking difference in outcome was the preservation of cartilage and bone in fXIIIA^−/− mice concurrent with reduced osteoclast numbers and activity. The local expression of osteoclast effectors receptor activator of nuclear factor-κB ligand (RANKL) and tartrate resistant acid phosphatase were significantly diminished in CIA-challenged and even unchallenged fXIIIA^−/− mice relative to wild-type animals, but were similar in wild-type and fibrinogen-deficient mice. Impaired osteoclast formation in fXIIIA^−/− mice was not due to an inherent deficiency of monocyte precursors, but it was linked to reduced RANKL-driven osteoclast formation. Furthermore, treatment of mice with the pan-transglutaminase inhibitor cystamine resulted in significantly diminished CIA pathology and local markers of osteoclastogenesis. Thus, eliminating fXIIIA limits inflammatory arthritis and protects from cartilage and bone destruction in part through mechanisms linked to reduced RANKL-mediated osteoclastogenesis. In summary, therapeutic strategies targeting fXIII activity may prove beneficial in limiting arthropathies and other degenerative bone diseases.