Most vertebrate embryonic and post-embryonic skeletal tissue formation occurs through the endochondral process in which cartilage serves a transitory role as the anlage for the bone structure. The differentiation of chondrocytes during this process in vivo is characterized by progressive morphological changes associated with the hypertrophy of these cells and is defined by biochemical changes that result in the mineralization of the extracellular matrix. The mechanisms, which, like those in vivo, promote both chondrogenesis in presumptive skeletal cell populations and endochondral progression of chondrogenic cells, may be examined in vitro. The work presented here describes mechanisms by which cells within presumptive skeletal cell populations become restricted to a chondrogenic lineage as studied within cell populations derived from 12-day-old chicken embryo calvarial tissue. It is found that a major factor associated with selection of chondrogenic cells is the elimination of growth within serum-containing medium. Chondrogenesis within these cell populations appears to be the result of permissive conditions which select for chondrogenic proliferation over osteogenic cell proliferation. Data suggest that chondrocyte cultures produce autocrine factors that promote their own survival or proliferation. The conditions for promoting cell growth, hypertrophy, and extracellular matrix mineralization of embryonic chicken chondrocytes in vitro include ascorbic acid supplementation and the presence of an organic phosphate source. The differentiation of hypertrophic chondrocytes in vitro is associated with a 10-15-fold increase in alkaline phosphatase enzyme activity and deposition of mineral within the extracellular matrix. Temporal studies of the biochemical changes coincident with development of hypertrophy in vitro demonstrate that proteoglycan synthesis decreases 4-fold whereas type X collagen synthesis increases 10-fold within the same period. Ultrastructural examination reveals cellular and extracellular morphology similar to that of hypertrophic cells in vivo with chondrocytes embedded in a well formed extracellular matrix of randomly distributed collagen fibrils and proteoglycan. Mineral deposition is seen in the interterritorial regions of the matrix between the cells and is apatitic in nature. These characteristics of chondrogenic growth and development are very similar in vivo and in vitro and they suggest that studies of chondrogenesis in vitro may provide a valuable model for the process in vivo.