Local and systemic bone loss is a common complication in patients with chronic inflammatory disease. Previously, we have identified that glucocorticoid (GC) activation by the enzyme 11beta-hydroxysteroid dehydrogenase type 1 (11β-HSD1) is increased within tissues such as bone during systemic inflammation. However, whilst effective at suppressing inflammation, in excess, GCs drive osteoporosis. To determine the contribution of 11β-HSD1 activated glucocorticoids to inflammatory bone loss, we crossed an 11β-HSD1 null mouse onto a transgenic murine model of chronic inflammation (TNF-Tg). The histology of tibia and bones of the hind paw were assessed by micro-Ct and in paraffin embedded sections. Bone strength was determined by three point bending. Serum markers of bone metabolism were assessed by ELISA and gene expression of osteoblast and osteoclasts determined by Real Time RT-PCR. Total osteoclast numbers within bone were determined by TRAP staining. At 9 weeks TNF-Tg/HSD1KO mice had greater juxta articular and systemic bone loss compared to TNF-Tg animals on a wild type background, with increased cortical bone erosions, decreased trabecular bone volume (decreased 70%; P<0.0005), decreased trabecular thickness (TNF-Tg, 66 μm vs TNF-Tg/HSD1KO 45.3 μm; P<0.005) and decreased trabecular number (decreased 68.2%; P<0.005). This was coupled with significantly reduced breaking points in TNF-Tg/HSD1KO mice relative to TNF-tg animals in three point bending tests. Serum markers of bone formation and gene expression of osteoblast markers were significantly decreased in the TNF-Tg/HSD1KO mouse (P1NP, Runx2 and osteoprotegerin reduced by 16%, 33% and 81% respectively; P<0.05). In contrast, serum markers of bone resorption and osteoclast numbers at sites of bone loss were significantly increased in both TNF-tg and TNF-Tg/HSD1KO mice relative to non-inflammatory controls. This study demonstrated that local glucocorticoids produced by 11β-HSD1 protect against inflammatory bone loss at sites of local joint destruction and systemically in this TNF-Tg model of chronic inflammation.