Osteogenic protein-1 (OP-1, BMP-7), a bone morphogenetic protein in the transforming growth factor-beta superfamily, induces endochondral bone formation in vivo, but the mechanism of action of OP-1 in osteogenesis is not yet established. Three murine clonal cell lines in different stages of differentiation exhibit graded responses to recombinant human OP-1: the mouse embryonal carcinoma ATDC5 cell, with potential for chondroblastic differentiation; the osteoblast-like MC3T3-E1 cell derived from mouse calvaria; and the multipotent fibroblastic C3H10T1/2 cell derived from mouse embryo connective tissue. We show that OP-1 acts on early stage mesenchymal progenitor cells (ATDC5, C3H10T1/2) to induce chondroblastic differentiation, while OP-1 strongly enhances the osteoblastic phenotype of committed osteoblasts (MC3T3-E1), possibly explaining its induction of the endochondral ossification cascade in vivo. Markers of osteoblastic, chondroblastic, and adipocytic differentiation are compared. OP-1 is strongly mitogenic for ATDC5, showing dose-dependent (2.5-80 ng/ml) induction of Alcian blue staining, alkaline phosphatase activity, and mRNA expression for collagen types II and IX, and matrix Gla protein. MC3T3-E1 cells do not proliferate or stain with Alcian blue in response to OP-1, but express elevated levels of alkaline phosphatase and osteocalcin. While low-dose OP-1 treatment of C3H10T1/2 induces only adipocyte-like cells filled with lipid droplets, a high dose (500 ng/ml) causes the same cells to also exhibit chondrocytic properties. Thus, OP-1 can induce differentiation along elements of the endochondral ossification pathway according to the stage and potential of the target cell.