It is believed that cell-cell interaction between mesenchyme cells is involved in the initiation of chondrogenesis, based largely on the inability of limb mesenchyme cells to differentiate into cartilage unless cultures are inoculated at densities greater than confluency. The present study describes a culture situation in which single limb mesenchyme cells either in or on type I collagen gels are shown to differentiate into cartilage, as defined by the appearance of a pericellular alcian blue staining matrix, intracellular type II collagen (demonstrated by indirect immunofluorescence with monoclonal antibody), and clonable cartilage cells. Because the differentiation of cartilage cells from single mesenchyme cells occurs only when the cells are in a round configuration, it is proposed that cell shape changes are one factor that can mediate effects of cell-cell interaction on differentiation.