Osteoblasts secrete transforming growth factor beta (TGF beta) as a biologically inert, latent complex that must be dissociated before the growth factor can exert its effects. We have examined the production and proteolytic activation of latent TGF beta (LTGF beta) by clonal UMR 106-01 rat osteosarcoma cells and neonatal mouse calvarial (MC) osteoblast-like cells in vitro. Synthetic bPTH-(1-34) increased the activity of tissue-type (tPA) and urokinase-type (uPA) plasminogen activators (PA) in cell lysates (CL) of UMR 106-01 cells. The concentration of active TGF beta in serum-free CM from cultures treated with bPTH-(1-34) and plasminogen was significantly greater than in CM from untreated controls and cultures treated with either bPTH-(1-34) or plasminogen alone. This effect occurred at concentrations of PTH-(1-34) that increased PA activity and was prevented by aprotinin, an inhibitor of plasmin activity. Treatment with bPTH-(1-34) had no effect on the concentration of TGF beta in acid-activated samples of CM. Functional consequences of proteolytically activated TGF beta was examined in primary cultures of neonatal MC osteoblast-like cells. Human platelet TGF beta 1 caused a dose-dependent increase in the migration of these cells in an in vitro wound healing assay. Cell migration was also stimulated in cultures treated with bPTH-(1-34) and plasminogen together. This effect was blocked by an anti-TGF beta 1 antibody. The results of these studies demonstrate that (1) LTGF beta secreted by osteoblasts in vitro is activated under conditions where the plasmin activity in the cultures is increased, and (2) the TGF beta generated by plasmin-mediated proteolysis is biologically active. We suggest that the local concentration of TGF beta in bone may be controlled by the osteoblast-associated plasminogen activator/plasmin system. Furthermore, since several calciotropic factors influence osteoblast PA activity, this system may have an important role in mediating their anabolic and/or catabolic effects.