Insulin induces early chondrogenesis in cultures of a clonal cell-line, ATDC5, which was derived from mouse embryonal carcinoma line AT805. Cartilage-generated matrix components chondromodulin-I (ChM-I) synergistically stimulates growth and differentiation of chondrocytes in the presence or absence of FGF-2. In contrast, ChM-I inhibits the proliferation of vascular endothelial cells and tube formation, thereby further stimulating cartilage growth and inhibiting replacing cartilage by bone in an early stage. Another cartilage-derived chondromodulin-II (ChM-II) also stimulates cartilage growth. However, ChM-II does not inhibit vascularization but stimulates osteoclast differentiation. Therefore, endochondral bone formation is regulated sequentially by cartilage-derived multiple autocrine factors. This opens a new mechanism of regulation of endochondral bone formation.