To examine the role of bone morphogenetic protein (BMP) signaling in chondrocytes during endochondral ossification, the dominant negative (DN) forms of BMP receptors were introduced into immature and mature chondrocytes isolated from lower and upper portions of chick embryo sternum, respectively. We found that control sternal chondrocyte populations expressed type IA, IB, and II BMP receptors as well as BMP-4 and -7. Expression of a DN-type II BMP receptor (termed DN-BMPR-II) in immature lower sternal (LS) chondrocytes led to a loss of differentiated functions; compared with control cells, the DN-BMPR- II-expressing LS chondrocytes proliferated more rapidly, acquired a fibroblastic morphology, showed little expression of type II collagen and aggrecan genes, and upregulated type I collagen gene expression. Expression of DN-BMPR-II in mature hypertrophic upper sternal (US) chondrocytes caused similar effects. In addition, the DN-BMPR-II-expressing US cells exhibited little alkaline phosphatase activity and type X collagen gene expression, while the control US cells produced both alkaline phosphatase and type X collagen. Both DN-BMPR-II-expressing US and LS chondrocytes failed to respond to treatment with BMP-2 . When we examined the effects of DN forms of types IA and IB BMP receptors, we found that DN-BMPR-IA had little effect, while DN-BMPR-IB had similar but weaker effects compared with those of DN-BMPR-II. We conclude that BMP signaling, particularly that mediated by the type II BMP receptor, is required for maintenance of the differentiated phenotype, control of cell proliferation, and expression of hypertrophic phenotype.