Fibromodulin, an acidic 59-kDa proteoglycan, binds to collagen and inhibits collagen fibril formation in vitro. To determine whether fibromodulin is also bound to collagen in vivo, we used immunocytochemical methods to study the spatial relation of the proteoglycan to collagen fibrils in cartilage and tendon. We also studied the quantitative distribution of fibromodulin among compartments in articular cartilage at the ultrastructural level. Fibromodulin was identified with polyclonal antibodies raised in rabbits, and immunoreactivity was detected with protein-A gold. As the major proportion of fibromodulin immunoreactivity was localized along the periphery of the collagen fibrils, the relationship to the banding pattern of the collagen fibrils was mapped. The proteoglycan showed a non-random distribution, with preference to the gap region, axially within the D-period. Reactivity differed among the tissue compartments, with the lowest degree of labelling pericellularly, increasing with distance from the cell, the highest levels being observed in the interterritorial matrix. Labelling density was highest at the articular surface, gradually decreasing towards the cartilage-bone junction. The correlation between collagen fibril diameter and fibromodulin concentration also varied among compartments. Thus, the ratio of fibromodulin to collagen surface density was highest at the surface of the joint cartilage, exhibiting a gradient with higher values in the territorial matrix, decreasing towards the cell in all layers. These findings indicate that fibromodulin represents a factor used by chondrocytes to regulate assembly and function of collagen fibrils.