Transforming growth factor beta (TGF-beta) has been shown to induce chondrogenesis by embryonic rat mesenchymal cells (Seyedin et al., J. Biol. Chem., 261: 5693, 1986). Here we report the effects of bovine TGF-beta on the phenotypic expression of differentiated primary rat osteoblastic and chondroblastic cells. Culture of rat calvarial osteoblasts with TGF-beta resulted in a dose and time-dependent decrease in alkaline phosphatase activity. Levels of alkaline phosphatase were reduced to less than 10% of control values by 0.4 nM TGF-beta. The decrease became apparent after 24 hours and reached a maximum by 72 hours. Similarly, treatment of chondroblasts with 0.4 nM TGF-beta resulted in decreased production of cartilage-specific macromolecules: type II collagen and cartilage proteoglycan. Both cell types exhibited dramatic changes in cell shape after treatment with TGF-beta. Modulation of these differentiated markers by TGF-beta could be mimicked, in part, by addition of fibronectin. Addition of dihydrocytochalasin B blocked the inhibition of phenotypic expression by TGF-beta. These results indicate that TGF-beta inhibits phenotypic expression by osteoblasts and chondroblasts in vitro and suggest that this activity of TGF-beta may be mediated through interactions between the extracellular matrix and cytoskeletal elements.