Treatment of chondrocytes in culture with interleukin-1 results in the production of neutral proteases that cause the degradation of the large aggregating proteoglycan. TGF-beta is a pleiotropic growth factor that has been shown to induce differentiation of cartilage and, in some cases, was able to inhibit the IL-1-dependent processes. In this report, we examined whether TGF-beta could block the IL-1 induced catabolic effects on chondrocytes. After treatment with IL-1 beta (30 ng/ml), rabbit articular chondrocytes produced approximately 2 units of neutral protease activity. Under identical conditions, TGF-beta 1 alone did not induce any protease activity. However, a combination of IL-1 and TGF-beta resulted in a dramatic reduction in the level of protease activity. The inhibitory effect of TGF-beta was also observed at the level of proteoglycan incorporation into the extracellular matrix. The IL-1 treated chondrocytes failed to incorporate proteoglycans into their extracellular matrix. However, addition of TGF-beta in the presence of IL-1 resulted in partial reversal towards a normal extracellular matrix. These studies indicate that TGF-beta can block and at least partially inhibit the catabolic effects of IL-1 on chondrocytes.