Demineralized adult bone matrix initiates de novo ectopic endochondral ossification 2–3 weeks following its intramuscular implantation into adult animals. This phenomenon appears to be similar, in some ways, to inductive cell-matrix interactions which regulate cartilage and bone formation during development. In the present study, we used embryonic chick limb-bud mesenchymal-cell cultures to bioassay extracts of demineralized bone matrix for chondrogenic activity. Guanidinium-chloride (4 M) extracts of demineralized bovine bone were dialyzed against buffers of decreasing ionic strength and then cold water. The coldwater-soluble fraction was found to stimulate chondrogenesis in intermediate-density limb-bud cell cultures (2.2 × 10 6 cells per 35-mm dish), as revealed by visual inspection with phase optics, toluidine-blue staining of fixed plates, and [ 35S] sulfate incorporation in the cell layer. Further fractionation of this material by anion-exchange, carbohydrate-affinity, and molecular-sieve chromotography produced a semipurified preparation possessing chondrogenic-stimulating activity at doses ranging from 3 to l0 μg/ml. The in vitro chondrogenic response of limb-bud mesenchymal cells was dose-dependent, required a minimal initial plating density of 2.08 × 10 5 cells/mm 2 of culture dish, and developed gradually over 8–10 days. At an optimal dose of extract, a continuous exposure period of at least 2–3 days was necessary to produce detectable chondrogenic stimulation. In addition, the amount of cartilage formed following an 8-day exposure was markedly influenced by the culture‘age’ of the mesenchymal cells (i.e., the time between plating and the start of treatment). The soluble nature of this bone-matrix extract makes mesenchymal-cell cultures an ideal assay system for further purification of the active agent, and also provides a means of investigating the cellular response pattern to the chondrogenic-stimulating activity.