Osteoprotegerin (OPG), a decoy receptor secreted by osteoblasts, is a major negative regulator of bone resorption. It functions by neutralizing the receptor activator of nuclear factor kappa-B ligand (RANKL), which plays a central role in promoting osteoclastogenesis. OPG is known to be a high-affinity heparan sulfate (HS) binding protein. Presumably, HS could regulate the function of OPG and affect how it inhibits RANKL. However, the molecular detail of HS-OPG interaction remains poorly understood, which hinders our understanding of how HS functions in osteoclastogenesis. Here we report mapping of the HS-binding site of OPG. The HS-binding site, identified by mutagenesis study, consists of eight basic residues that are located mostly at the junction of the second death domain and the C-terminal domain. We further show that heparin- derived dodecasaccharide is able to induce dimerization of OPG monomers with a stoichiometry of 1:1. Small-angle X-ray scattering analysis revealed that upon binding of HS, OPG undergoes a dramatic conformational change, resulting in a more compact and less flexible structure. Importantly, we present here three lines of evidence that HS, OPG and RANKL forms a stable ternary complex. Using a HS-binding deficient OPG mutant, we further show that in an osteoblast/bone marrow macrophage co-culture system, immobilization of OPG by HS at the osteoblast cell surface substantially lowers the inhibitory threshold of OPG towards RANKL. These discoveries strongly suggest that HS plays an active role in regulating OPG-RANKL interaction and osteoclastogenesis.