Hypertrophic chondrocytes and osteoblasts produce alkaline phosphatase (ALPase)-enriched matrix vesicles in vivo and in vitro and, along with certain epithelial cell lines and osteoblast precursors, induce bone when implanted in mesenchymal tissues. This study examined whether ALPase-enriched matrix vesicle production in vitro was a general property of cells that induce bone in vivo. Epithelial cell lines FL, WISH, and OK 16; connective tissue cell lines HEPM 1 and HEPM 2; neonatal rat muscle cells; rat costochondral chondrocytes; and human fibroblasts were implanted intramuscularly into nude mice. The FL and WISH cells produced tumors and induced large islands of bone with focal areas of cartilage immediately adjacent to the tumors. The chondrocytes formed cartilage nodules but did not induce bone, indicating that the ability of the cells to form a solid mass was not an a priori requirement for bone formation. No other cell type produced tumors or nodules or induced bone formation, although connective tissue cells have been shown to induce chondrogenesis in vitro and osteogenesis in vivo. Only matrix vesicles from normal chondrocytes, FL, WISH, and OK16 cultures exhibited enriched ALPase-specific activity. Matrix vesicles from FL and WISH cultures exhibited ALPase specific activities similar to those isolated from osteoblast or chondrocyte cultures. These data suggest that the ability to produce ALPase-enriched matrix vesicles in culture may be associated with the ability of cells to induce bone or cartilage in vivo.