Multinucleated giant cells (MNG) are central players in the inflammatory response to foreign materials and in adverse responses to implants. IL-4 promotes the formation of MNG from bone marrow-derived precursors in vitro and participates in the development of the foreign body reaction in vivo. Therefore, we investigated the mechanism by which IL-4 promotes formation of MNG and engulfment of foreign bodies. We found that generation of MNG cells by IL-4 was dependent on cell density and expression of STAT6; macrophages derived from STAT6^−/− mice were unable to form MNG in response to IL-4. No soluble factors including CCL2 or supernatants from IL-4-treated macrophages compensated for the lack of MNG cells in STAT6^−/− cultures. We found that IL-4 must remain present during the full differentiation process and that STAT6^+/+ macrophage precursors retained their ability to differentiate into MNG over time. These MNG were able to internalize large particles efficiently, and the mononuclear STAT6^−/− macrophages were unable to do so. Furthermore, we found that IL-4 induced expression of E-cadherin and dendritic cell-specific transmembrane protein in a STAT6-dependent manner. E-cadherin expression was critical for the formation of MNG cells by IL-4; an anti-E-cadherin antibody prevented the formation of large MNG. In addition, we found that STAT6^−/− progenitors failed to fuse with STAT6^+/+, revealing the need for a homotypic interaction. Thus, IL-4 promotes the formation of MNG in a STAT6-dependent manner by regulating cell surface expression of E-cadherin, leading to homotypic cell fusion and the incorporation of large foreign bodies.