In this report, we studied the relationship between telomerase activity and in vitro differentiation of osteosarcoma cells. Human osteosarcoma cells (HOS-8603) were treated with all-trans-retinoic acid (RA) and dexamethasone (DEX). Cell cycle phase, alkaline phosphatase (AP) activity, telomerase activity, and human telomerase RNA (hTR) in treated cells were detected. The results showed that the treated cells underwent morphologic differentiation. AP activity of the cells increased significantly. The proportion of the cells in S and G2/M phases was increased. A pronounced decline in telomerase activity was observed, but no significant difference in the amount of hTR expressed, when compared with the control. This study demonstrates that: (1) both RA and DEX can inhibit cell growth and induce morphologic and functional differentiation of HOS-8603 cells; (2) telomerase is an enzyme system regulated during induced differentiation of HOS-8603 cells; (3) significantly decreased telomerase activity may be an indicator of differentiation but does not parallel the expression level of hTR; and (4) the regulation of telomerase is directly linked to cell differentiation not cell cycle.