Mutant BMP receptors were transfected into cultured embryonic upper sternal chrondrocytes using retroviral vectors to determine if BMP signaling is required for chondrocyte maturation and the expression of a key regulatory molecule, Indian hedgehog (Ihh). Chondrocytes infected with replication competent avian retroviruses (RCAS) viruses carrying constitutive active (CA) BMPR-IA and BMPR-IB had enhanced expression of type X collagen and Ihh mRNA. Addition of PTHrP, a known inhibitor of chondrocyte maturation, abolished the expression of type X collagen, BMP-6, and Ihh mRNAs in control cells. In contrast, PTHrP treated cultures infected with of CA BMPR-IA or CA BMPR-IB had low levels of BMP-6 and type X collagen, but high levels of Ihh expression. Although dominant negative (DN) BMPR-IA had no effect, DN BMPR-IB inhibited the expression of type X collagen and BMP-6, and decreased alkaline phosphatase activity, even in the presence of exogenously added BMP-2 and BMP-6. DN BMPR-IB also completely blocked Ihh expression. Overall, the effect of DN BMPR-IB mimicked the effects of PTHrP. To determine if there is an autocrine role for the BMPs in chondrocyte maturation, the cultures were treated with noggin and follistatin, molecules that bind BMP-2/-4 and BMP-6/-7, respectively. While noggin and follistatin inhibited the effects of recombinant BMP-2 and BMP-6, respectively, they had only minimal effects on the spontaneous maturation of chondrocytes in culture, suggesting that more than one subgroup of BMPs regulates chondrocyte maturation. The results demonstrate that: (i) BMP signaling stimulates chondrocyte maturation; (ii) BMP signaling increases Ihh expression independent of maturational effects; and (iii) BMP signaling can partially overcome the inhibitory effects of PTHrP on maturation.