This study examined the effects of 17-beta-estradiol (E2) on chondrocyte differentiation in vitro. Cells derived from male or female rat costochondral growth zone and resting zone cartilage were used to determine whether the effects of E2 were dependent on the stage of chondrocyte maturation and whether they were sex-specific. [3H]-Thymidine incorporation, cell number, alkaline phosphatase specific activity, and percent collagen production were used as indicators of differentiation. Alkaline phosphatase specific activity in matrix vesicles and plasma membranes isolated from female chondrocyte cultures was measured to determine which membrane fraction was targeted by the hormone. Specificity of the E2 effects was assessed using 17-alpha-estradiol. The role of fetal bovine serum and phenol red in the culture medium was also addressed. The results demonstrated that E2 decreases cell number and [3H]-thymidine incorporation in female chondrocytes, indicating that it promotes differentiation of these cells. Alkaline phosphatase specific activity is stimulated in both growth zone and resting zone cells, but the effect is greater in the less mature resting zone chondrocytes. The increase in enzyme activity is targeted to the matrix vesicles in both cell types, but the fold increase is greater in the growth zone cells. In male chondrocytes, there was a decrease in [3H]-thymidine incorporation at high E2 concentrations in resting zone cells at the earliest time point examined (12 hours) and a slight stimulation in alkaline phosphatase activity in growth zone cells at 24 hours. Cells cultured in serum-free medium exhibited a dose-dependent inhibition in alkaline phosphatase activity when cultured with E2, even in the presence of phenol red. E2-dependent stimulation of enzyme activity is seen only in the presence of serum, suggesting that serum factors are also necessary. E2 increased percent collagen production in female cells only; the magnitude of the effect was greatest in the resting zone chondrocyte cultures. The results of this study indicate that the effects of E2 are dependent on time of exposure, presence of serum, and the sex and state of maturation of the chondrocytes. E2-dependent stimulation of alkaline phosphatase specific activity is targeted to matrix vesicles.