Bone-forming osteoblasts interact with bone-resorbing osteoclasts to coordinate the turnover of bone matrix and to control skeletal homeostasis. Medaka and zebrafish larvae are widely used to analyze the behavior of bone cells during bone formation, degeneration, and repair. Their optical clarity allows the visualization of fluorescently labeled bone cells and fluorescent dyes bound to the mineralized skeletal matrix. Our lab has generated transgenic medaka fish that express the osteoclast-inducing factor Receptor Activator of Nuclear-factor κB Ligand (RANKL) under the control of a heat shock-inducible promoter. Ectopic expression of RANKL results in the excess formation of activated osteoclasts, which can be visualized in reporter lines with nlGFP expression under the control of the cathepsin K (ctsk) promoter. RANKL induction and ectopic osteoclast formation leads to severe osteoporosis-like phenotypes. Compound transgenic medaka lines that express ctsk:nlGFP in osteoclasts, as well as mCherry under the control of the osterix (osx) promoter in premature osteoblasts, can be used to study the interaction of both cell types. This facilitates the in vivo observation of cellular behavior under conditions of bone degeneration and repair. Here, we describe the use of this system to test a drug commonly used in human osteoporosis therapy and describe a protocol for live imaging. The medaka model complements studies in cell culture and mice, and offers a novel system for the in vivo analysis of drug action in the skeletal system.