For cartilage reconstruction, it is still difficult to obtain a sufficient volume of cartilage and to maintain its functional phenotype for a long period. Utilizing tissue stem cells is one approach to overcome such difficulties. We show here the presence of cartilage progenitor cells in the ear perichondrium of adult rabbits by 5-bromo-2 0 -deoxyuridine labeling, clonogenicity, and differentiation analyses. Long-term label-retaining cells were demonstrated in the perichondrium. Cells from the perichondrium, that is, perichondrocytes were mechanically isolated using a raspatory and maintained in D-MEM/F-12 medium with 10% FCS. They proliferated more vigorously than chondrocytes from the cartilage. Perichondrocytes could differentiate into adipocytes as well as osteocytes in differentiation induction medium. For cartilage reconstruction in vivo, perichondrocytes were seeded on collagen sponge scaffolds and implanted in nude mice. After 4 weeks, the composites with perichondrocytes generated the same weight of cartilaginous tissue as those with chondrocytes. They produced glycosaminoglycan and type II collagen as shown by RT-PCR and immunohistochemical examination. On the contrary, rabbit bone marrow mesenchymal stem cells used as control could regenerate significantly smaller cartilage than perichondrocytes in the implant study. Based on these findings, we propose that the perichondrium containing tissue progenitor cells is one of the potential candidates for use in reconstructing cartilage and new therapeutic modalities.