During endochondral bone development cartilage formation always precedes that of bone, leading to the hypothesis that chondrocytes provide inductive signals for osteogenesis. To test this hypothesis, C3H10T1/2 mesenchymal stem cells were cocultured in membrane separated trans-well culture chambers with nonhypertrophic chondrocytes, hypertrophic chondrocytes, calvaria osteoblasts, or tendon fibroblasts derived from embryonic chickens to assess if individual cell types would selectively promote osteogenic differentiation. Then, differentiation of C3H10T1/2 mesenchymal stem cells in coculture were compared with that induced by bone morphogenetic protein 7 or osteogenic protein-1 (BMP-7; OP-1) treatment. Osteogenesis, as determined by the expression of Cbfa1 and osteocalcin (OC) messenger RNAs (mRNAs), was induced strongly in C3H10T1/2 cells cocultured with both chondrocyte cell populations but was not induced by coculture with either osteoblasts or skin fibroblasts. Interestingly, treatment of C3H10T1/2 cells with BMP-7 induced both chondrogenesis and osteogenesis, and only osteogenic differentiation was observed in the C3H10T1/2 cells cocultured with chondrocytes. No alterations in the expression of mRNAs for BMP-1 to -8 were observed in the C3H10T1/2 cells under any of the coculture conditions. This shows that the induction of endogenous BMPs by coculture does not regulate osteogenesis in an autocrine manner. These results show that chondrocytes express soluble morphogenetic factors that selectively promote osteogenesis, and this selective effect is not mimicked by an exogenously added BMP.