We have investigated the regulation of chondroblast/chondrocyte differentiation using a unique clonal cell population, designated RCJ 3.1C5 (C5), which differentiates into discrete three-dimensional cartilage nodules when grown in the presence of 15% fetal calf serum. Histologically, the nodules resembled hyaline cartilage; they contained large rounded chondrocytes surrounded by a refractile matrix which stained intensely with Alcian blue, exhibited metachromasia after Toluidine blue staining, and stained with an antibody against type II collagen. The cartilage nodules that formed did not mineralize, despite the presence of organic phosphate in the culture medium. The synthetic glucocorticoid dexamethasone (DEX) increased the number of cartilage nodules formed in a dose-dependent manner (ED50, approximately 10(-9) M), with a maximal stimulatory dose of 10(-8) M. DEX had no effect on the population doubling time and saturation density. The effects of DEX on the number of cartilage nodules were similar whether it was added from the beginning of the culture period (starting during exponential growth) or at confluence. In contrast, 1,25-dihydroxyvitamin D3 [1,25-(OH)2D3] inhibited cartilage nodule formation in a dose-dependent manner (IC50, approximately 5 x 10(-10) M), with maximum inhibition at 10(-7) M. In addition, 1,25-(OH)2D3 decreased cell proliferation and saturation density. Equimolar doses of the vitamin D3 metabolites 24,25-dihydroxyvitamin D3 and 25-hydroxyvitamin D3 had no effect. C5 cells treated with 1,25-(OH)2D3 in the absence of DEX during the exponential growth phase exhibited a reduced capacity to form cartilage nodules upon subsequent exposure to DEX. At confluence, before cartilage nodules had formed, C5 cells responded to PTH and prostaglandin-E2 with increases in intracellular cAMP of about 10- and 95-fold respectively. After cartilage nodules were present, prostaglandin-E2 responsiveness decreased to about 25-fold, whereas there was no significant change in PTH responsiveness. DEX decreased the population alkaline phosphatase levels at all times measured, whereas 1,25-(OH)2D3 had a biphasic effect: an increase at 5 days in culture, followed by a decrease at later times in culture. These data indicate that the clonal cell line RCJ 3.1C5 is a useful model system in which to investigate cartilage differentiation.