When maintained in long-term cell culture in the presence of ascorbic acid and organic phosphate, single cell suspensions isolated from fetal rat calvaria form discrete, three-dimensional bone nodules. We have used limiting dilution analysis in microtiter wells to determine the number of osteoprogenitor cells expressing the capacity to form bone in the isolated mixed population, to examine the possibility of cooperativity among cell types in bone nodule formation, and to determine the effects of dexamethasone on osteoprogenitor cells. Cells plated at very low densities and screened for the presence or absence of bone nodules revealed a linear relationship (r = -00.997) between the number of cells plated and the number of bone nodules formed. The complete limiting dilution analyses showed that 1 of every 335 plated cells (0.30% of the cell population) has the capacity to form a bone nodule under standard culture conditions and when the actual numbers of nodules were quantitated from the same plated cell populations the ratio of nodules formed to plated cells was similar. Comparison of data from 13 different isolates of cells in which cells were plated into 35-mm dishes and number of nodules were determined indicated a mean +/- 95% confidence interval of one nodule for every 301 +/- 61 plated cells, consistent with the data obtained from the limiting dilution experiments. Dexamethasone increased the number of bone-forming cells to 1 in 225 cells, in contrast to 1 in 340 cells in the same population grown without added dexamethasone. The results suggest that approximately 0.30% of the cells in isolated rat calvaria populations are osteoprogenitor cells, that one osteoprogenitor cell gives rise to one bone nodule, that cooperativity between different cells in vitro is not necessary for bone formation, and that dexamethasone stimulates the expression of osteoprogenitor cells.