Bruton's tyrosine kinase (Btk) is a therapeutic target for rheumatoid arthritis, but the cellular and molecular mechanisms by which Btk mediates inflammation are poorly understood. Here we describe the discovery of CGI1746, a small-molecule Btk inhibitor chemotype with a new binding mode that stabilizes an inactive nonphosphorylated enzyme conformation. CGI1746 has exquisite selectivity for Btk and inhibits both auto- and transphosphorylation steps necessary for enzyme activation. Using CGI1746, we demonstrate that Btk regulates inflammatory arthritis by two distinct mechanisms. CGI1746 blocks B cell receptor–dependent B cell proliferation and in prophylactic regimens reduces autoantibody levels in collagen-induced arthritis. In macrophages, Btk inhibition abolishes FcγRIII-induced TNFα, IL-1β and IL-6 production. Accordingly, in myeloid- and FcγR-dependent autoantibody-induced arthritis, CGI1746 decreases cytokine levels within joints and ameliorates disease. These results provide new understanding of the function of Btk in both B cell– or myeloid cell–driven disease processes and provide a compelling rationale for targeting Btk in rheumatoid arthritis.