Toughening in hierarchically structured materials like bone arises from the arrangement of constituent material elements and their interactions. Unlike microcracking, which entails micrometer-level separation, there is no known evidence of fracture at the level of bone’s nanostructure. Here, we show that the initiation of fracture occurs in bone at the nanometer scale by dilatational bands. Through fatigue and indentation tests and laser confocal, scanning electron, and atomic force microscopies on human and bovine bone specimens, we established that dilatational bands of the order of 100 nm form as ellipsoidal voids in between fused mineral aggregates and two adjacent proteins, osteocalcin (OC) and osteopontin (OPN). Laser microdissection and ELISA of bone microdamage support our claim that OC and OPN colocalize with dilatational bands. Fracture tests on bones from OC and/or OPN knockout mice (OC^−/−, OPN^−/−, OC-OPN^{−/−;​−/−}) confirm that these two proteins regulate dilatational band formation and bone matrix toughness. On the basis of these observations, we propose molecular deformation and fracture mechanics models, illustrating the role of OC and OPN in dilatational band formation, and predict that the nanometer scale of tissue organization, associated with dilatational bands, affects fracture at higher scales and determines fracture toughness of bone.