To understand the mechanisms by which glucocorticoids promote differentiation of fetal rat calvaria derived osteoblasts to produce bone-like mineralized nodules in vitro, a panel of osteoblast growth and differentiation related genes that characterize development of the osteoblast phenotype has been quantitated in glucocorticoid-treated cultures. We compared the mRNA levels of osteoblast expressed genes in control cultures of subcultivated cells where nodule formation is diminished, to cells continuously (35 days) exposed to 10(-7) M dexamethasone, a synthetic glucocorticoid, which promotes nodule formation to levels usually the extent observed in primary cultures. Tritiated thymidine labelling revealed a selective inhibition of internodule cell proliferation and promotion of proliferation and differentiation of cells forming bone nodules. Fibronectin, osteopontin, and c-fos expression were increased in the nodule forming period. Alkaline phosphatase and type I collagen expression were initially inhibited in proliferating cells, then increased after nodule formation to support further growth and mineralization of the nodule. Expression of osteocalcin was 1,000-fold elevated in glucocorticoid-differentiated cultures in relation to nodule formation. Collagenase gene expression was also greater than controls (fivefold) with the highest levels observed in mature cultures (day 35). At this time, a rise in collagen and TGF beta was also observed suggesting turnover of the matrix. Short term (48 h) effects of glucocorticoid on histone H4 (reflecting cell proliferation), alkaline phosphatase, osteopontin, and osteocalcin mRNA levels reveal both up or down regulation as a function of the developmental stage of the osteoblast phenotype. A comparison of transcriptional levels of these genes by nuclear run-on assays to mRNA levels indicates that glucocorticoids exert both transcriptional and post-transcriptional effects. Further, the presence of glucocorticoids enhances the vitamin D3 effect on gene expression. Those genes which are upregulated by 1,25(OH)2D3 are transcribed at an increased rate by dexamethasone, while those genes which are inhibited by vitamin D3 remain inhibited in the presence of dexamethasone and D3. We propose that the glucocorticoids promote changes in gene expression involved in cell-cell and cell-extracellular matrix signaling mechanisms that support the growth and differentiation of cells capable of osteoblast phenotype development and bone tissue-like organization, while inhibiting the growth of cells that cannot progress to the mature osteoblast phenotype in fetal rat calvarial cultures.