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The development of modern birds provides a window into the biology of their dinosaur ancestors. We investigated avian postnatal development and found that sterile inflammation drives formation of the pygostyle, a compound structure resulting from bone fusion in the tail. Inflammation is generally induced by compromised tissue integrity, but here is involved in normal bone development. Transcriptome profiling and immuno/histochemistry reveal a robust inflammatory response that resembles bone fracture healing. The data suggest the involvement of necroptosis and multiple immune cell types, notably heterophils (the avian equivalent of neutrophils). Additionally, nucleus pulposus structures, heretofore unknown in birds, are involved in disc remodeling. Anti-inflammatory corticosteroid treatment inhibited vertebral fusion, substantiating the crucial role of inflammation in the ankylosis process. This study shows that inflammation can drive developmental skeletogenesis, in this case leading to the formation of a flight-adapted tail structure on the evolutionary path to modern avians.