The role of histone ubiquitination in directing cell lineage specification is only poorly understood. Our previous work indicated a role of the histone 2B ubiquitin ligase RNF40 in controlling osteoblast differentiation in vitro. Here, we demonstrate that RNF40 has a stage-dependent function in controlling osteoblast differentiation in vivo. RNF40 expression is essential for early stages of lineage specification, but is dispensable in mature osteoblasts. Paradoxically, while osteoblast-specific RNF40 deletion led to impaired bone formation, it also resulted in increased bone mass due to impaired bone cell crosstalk. Loss of RNF40 resulted in decreased osteoclast number and function through modulation of RANKL expression in OBs. Mechanistically, we demonstrate that Tnfsf11 (encoding RANKL) is an important target gene of H2B monoubiquitination. These data reveal an important role of RNF40-mediated H2B monoubiquitination in bone formation and remodeling and provide a basis for exploring this pathway for the treatment of conditions such as osteoporosis or cancer-associated osteolysis.