An in vitro model has been developed to study chondrogenic induction, proliferation and differentiation. Embryonic rat mesenchymal cells isolated from muscle and embedded in agarose were treated with a partially purified extract from bovine demineralized bone powder. Treated cells proliferated and synthesized matrix similar to differentiated chondrogenic cells in a dose-dependent manner. By employing an enzyme-linked immunosorbent assay (ELISA), cartilage-specific proteoglycan and type II collagen synthesis were quantitated. Of the cells tested, only embryonic mesenchymal cells from muscle responded to bone extract. Proteoglycan synthesis was sensitive to type of medium and cell density.