Osteoblast-like and osteoclast-like cells freed from neonatal calvaria by sequential enzymatic digestion after 6-7 days in culture were placed in diffusion chambers and implanted in the peritoneal cavities of CD-1 mice. About half of the chambers also contained a dead calvarium to test for the need of an "inducer." After 20 days, 11 of 18 chambers containing to osteoblast-like cells formed large foci of mineralized bone that corresponded to alkaline phosphatase activity throughout the chambers. Moreover, only type I (i.e., bone) collagen was formed. Occasional deposits of bone were found in only 3 of 22 chambers containing the osteoclast-like cells. The presence of dead bone did not affect any of the results. These data confirm the osteoblast-like nature of the isolated cell populations and demonstrate that these cells retain their differentiated function in culture.