Sulfation of proteoglycans is an important post-translational modification in chondrocytes. We previously found that 3'-phosphoadenosine 5'-phosphosulfate (PAPS) synthetase-2 levels increased more than 10-fold during mesenchymal cell chondrogenesis. Given that PAPS is the sole sulfur donor, and is produced only by PAPS synthetase in all cells, increased expression of PAPS synthetase-2 should be a prerequisite for increased sulfation activity of chondrocytes. We found that sodium chlorate, a specific inhibitor of PAPS synthetase, inhibited proteoglycan sulfation during chondrogenesis. In contrast, sodium chlorate unexpectedly induced early expression of type II collagen and increased the number of cartilage nodules during chondrogenesis. Inhibition of sulfation also accelerated the down-regulation of N-cadherin and fibronectin during chondrogenesis. These findings suggest that sulfation has an important regulatory role in coordinating the timely expression of extracellular matrix molecules during chondrogenesis, and that under-sulfation may cause the breakdown of this coordination, leading to premature chondrogenesis.