In vitro models of endochondral bone formation using both primary and immortalized cells have provided insight regarding factors and signaling pathways involved in chondrocyte maturation and endochondral bone formation. However, primary murine cell culture models of chondrocyte differentiation have not been established but have enormous potential due to the possible use of cells from transgenic and knockout animals. Here, we show that stage E11.5 embryonic murine limb bud mesenchymal stem cells in micromass cell culture progress through the stages of chondrogenesis, chondrocyte hypertrophy, terminal differentiation, and matrix calcification. This cell culture system recapitulated the sequential expression of genes that characterize chondrocyte differentiation, including Sox9, col2, colX, MMP13, VEGF, and osteocalcin. TGF-beta treatment for up to 21 days markedly delayed the rate of chondrocyte maturation and inhibited matrix calcification and its related gene expression. In TGF-beta-treated cultures, the hypertrophic and terminal differentiation markers colX, VEGF, MMP13, and osteocalcin were reduced or absent. PGE2 had minimal effects on chondrocyte hypertrophy but delayed terminal differentiation and matrix calcification. Thus, primary murine mesenchymal cells sequentially differentiate through the various stages of chondrocyte maturation and establish a model whereby the role of specific signaling molecules can be examined in cells derived from transgenic or knockout mice.