Expression of specific differentiation markers was investigated by histochemistry, immunofluorescence, and biosynthetic studies in osteoblasts outgrown from chips derived from tibia diaphyses of 18-day-old chick embryos. The starting osteoblast population expressed type I collagen and alkaline phosphatase in addition to other bone and cartilage markers as the lipocalin Ch21; the extracellular matrix deposited by these cells was not stainable for cartilage proteoglycans, and mineralization was observed when the culture was maintained in the presence of ascorbic acid, calcium and beta-glycerophosphate. During culture, clones of cells presenting a polygonal chondrocyte morphology and surrounded by an Alcian-positive matrix appeared in the cell population. Type II collagen and type X collagen were synthesized in these areas of chondrogenesis. In addition, chondrocytes isolated from these cultures expressed Ch21 and alkaline phosphatase. Chondrocytes were generated also from homogeneous osteoblast populations derived from a single cloned cell. The coexistence of chondrocytes and osteoblasts was observed during amplification of primary clones as well as in subclones. The data show the existence, within embryonic bone, of cells capable in vitro of both osteogenic and chondrogenic differentiation.