Transcriptional regulation of cell- and stage-specific genes is a crucial process in the development of mesenchymal tissues. Here we have investigated the regulatory mechanism of the expression of the chondromodulin-I (ChM-I) gene, one of the chondrocyte-specific genes, in osteogenic cells using osteosarcoma (OS) cells as a model. Methylation-specific sequence analyses revealed that the extent of methylation in the core-promoter region of the ChM-I gene was correlated inversely with the expression of the ChM-I gene in OS primary tumors and cell lines. 5-Aza-deoxycytidine treatment induced the expression of the ChM-I gene in ChM-I-negative OS cell lines, and the induction of expression was associated tightly with the demethylation of cytosine at -52 (C(-52)) in the middle of an Sp1/3 binding site to which the Sp3, but not Sp1, bound. The replacement of C(-52) with methyl-cytosine or thymine abrogated Sp3 binding and also the transcription activity of the genomic fragment including C(-52). The inhibition of Sp3 expression by small interfering RNA reduced the expression of the ChM-I gene in ChM-I-positive normal chondrocytes, indicating Sp3 as a physiological transcriptional activator of the ChM-I gene. These results suggest that the methylation status of the core-promoter region is one of the mechanisms to determine the cell-specific expression of the ChM-I gene through the regulation of the binding of Sp3.