A culture system that facilitates the chondrogenic differentiation of rabbit bone marrow-derived mesenchymal progenitor cells has been developed. Cells obtained in bone marrow aspirates were first isolated by monolayer culture and then transferred into tubes and allowed to form three-dimensional aggregates in a chemically defined medium. The inclusion of 10(-7) M dexamethasone in the medium induced chondrogenic differentiation of cells within the aggregate as evidenced by the appearance of toluidine blue metachromasia and the immunohistochemical detection of type II collagen as early as 7 days after beginning three-dimensional culture. After 21 days, the matrix of the entire aggregate contained type II collagen. By 14 days of culture, there was also evidence for type X collagen present in the matrix and the cells morphologically resembled hypertrophic chondrocytes. However, chondrogenic differentiation was achieved in only approximately 25% of the marrow cell preparations used. In contrast, with the addition of transforming growth factor-beta 1 (TGF-beta 1), chondrogenesis was induced in all marrow cell preparations, with or without the presence of 10(-7) M dexamethasone. The induction of chondrogenesis was accompanied by an increase in the alkaline phosphatase activity of the aggregated cells. The results of RT-PCR experiments indicated that both type IIA and IIB collagen mRNAs were detected by 7 days postaggregation as was mRNA for type X collagen. Conversely, the expression of the type I collagen mRNA was detected in the preaggregate cells but was no longer detectable at 7 days after aggregation. These results provide histological, immunohistochemical, and molecular evidence for the in vitro chondrogenic differentiation of adult mammalian progenitor cells derived from bone marrow.