T3 is an important regulator of endochondral bone formation in epiphyseal growth plates. Growth arrest in juvenile hypothyroidism results from disorganization of growth plate chondrocytes and their failure to undergo hypertrophic differentiation, but it is unclear how T3 acts directly on chondrocytes or whether its actions involve other pathways. To address this issue, we investigated whether thyroid hormone receptors (TR) were localized to discrete regions of the unfused epiphysis by immunohistochemistry performed in tibial growth plates from 21-day-old rats and examined the effects of T3 on growth plate chondrocytes in agarose suspension cultures in vitro. TRalpha1, -alpha2, and -beta1 were expressed in reserve and proliferating zone chondrocytes, but not in hypertrophic cells, suggesting that progenitor cells and immature chondrocytes are the major T3 target cells in the growth plate. Chondrocytes in suspension culture expressed TRalpha1, -alpha2, and -beta1 messenger RNAs and matured by an ordered process of clonal expansion, colony formation, and terminal hypertrophic differentiation. Clonal expansion and proliferation of chondrocytes were inhibited by T3, which also induced alkaline phosphatase activity, expression of collagen X messenger RNA, and secretion of an alcian blue-positive matrix as early as 7 days after hormone stimulation. Thus, T3 inhibited chondrocyte clonal expansion and cell proliferation while simultaneously promoting hypertrophic chondrocyte differentiation. These data indicate that thyroid hormones concurrently and reciprocally regulate chondrocyte cell growth and differentiation in the endochondral growth plate.