Bone morphogenetic proteins (BMPs) have the unique ability to convert mesenchymal cells into matrix-producing osteoblasts. To understand the mechanism(s) by which a BMP produces a multitude of effects on bone cells, we examined the effects of recombinant human osteogenic protein (OP)-1 (referred to as BMP-7) on the insulin-like growth factor (IGF) regulatory system, an important growth factor system in bone. After 48 h of treatment, OP-1 increased the level of IGF-II (3- and 2-fold, respectively, at 100 ng/ml) in the conditioned medium (CM) of SaOS-2 and TE85 human osteosarcoma cells with osteoblastic characteristics, whereas IGF-I levels were low to undetectable in the CM of either cell type. OP-1 treatment had no significant effect on the messenger RNA (mRNA) level for type 1 and type 2 IGF receptors. In TE85 and SaOS-2 cells, 100 ng/ml OP-1 increased the level of IGF binding protein (BP)-3 more than 10-fold, decreased the IGFBP-4 level by 50%, and increased the level of the 29-32.5 kDa IGFBP-5 3-fold in the CM as determined by analysis with Western ligand blot, Western immunoblot, and RIA. The effect of OP-1 on IGFBP production was time and dose dependent. The OP-1 induced changes in the levels of IGFBPs were associated with decreased IGFBP-3 and -5 protease activity (29% and 71%, respectively) and proportional changes in IGFBP mRNA levels. OP-1 increased the level of IGFBP-3 mRNA (2- and 10-fold, respectively, after 4 and 24 h of treatment at 100 ng/ml) and of IGFBP-5 mRNA (more than 5-fold after 24 h of treatment) but decreased the level of IGFBP-4 mRNA (> 50% after 24 h at 100 ng/ml). OP-1 treatment had no effect on IGFBP-4 protease activity. These results collectively demonstrate that OP-1 can act locally by modulating the IGF regulatory system, suggesting that the mitogenic/differentiative effect of OP-1 on human bone cells may in part be mediated via IGF-II by increasing its secretion, and by regulating the balance between the stimulatory (e.g. IGFBP-5) and inhibitory (e.g. IGFBP-4) classes of IGFBPs both at the level of production (mRNA) and at the level of degradation but not by up-regulating the IGF receptor.