The molecular mechanisms by which bone morphogenetic proteins (BMPs) promote skeletal cell differentiation were investigated in the murine mesenchymal stem cell line C3H10T1/2. Both BMP-7 and BMP-2 induced C3H10T1/2 cells to undergo a sequential pattern of chondrogenic followed by osteogenic differentiation that was dependent on both the concentration and the continuous presence of BMP in the growth media. Differentiation was determined by the expression of chondrogenesis and osteogenesis associated matrix genes. Subsequent experiments using BMP-7 demonstrated that withdrawal of BMP from the growth media led to a complete loss of skeletal cell differentiation accompanied by adipogenic differentiation of these cells. Continuous treatment with BMP-7 increased the expression of Sox9, Msx 2, and c-fos during the periods of chondrogenic differentiation after which point their expression decreased. In contrast, Dlx 5 expression was induced by BMP-7 treatment and remained elevated throughout the time-course of skeletal cell differentiation. Runx2/Cbfa1 was not detected by ribonuclease protection assay (RPA) and did not appear to be induced by BMP-7. The sequential nature of differentiation of chondrocytic and osteoblastic cells and the necessity for continuous BMP treatment to maintain skeletal cell differentiation suggests that the maintenance of selective differentiation of the two skeletal cell lineages might be dependent on BMP-7-regulated expression of other morphogenetic factors. An examination of the expression of Wnt, transforming growth factor-beta (TGF-beta), and the hedgehog family of morphogens showed that Wnt 5b, Wnt 11, BMP-4, growth and differentiation factor-1 (GDF-1), Sonic hedgehog (Shh), and Indian hedgehog (Ihh) were endogenously expressed by C3H10T1/2 cells. Wnt 11, BMP-4, and GDF-1 expression were inhibited by BMP-7 treatment in a dose-dependent manner while Wnt 5b and Shh were selectively induced by BMP-7 during the period of chondrogenic differentiation. Ihh expression also showed induction by BMP-7 treatment, however, the period of maximal expression was during the later time-points, corresponding to osteogenic differentiation. An interesting phenomenon was that BMP-7 activity could be further enhanced twofold by growing the cells in a more nutrient-rich media. In summary, the murine mesenchymal stem cell line C3H10T1/2 was induced to follow an endochondral sequence of chondrogenic and osteogenic differentiation dependent on both dose and continual presence of BMP-7 and enhanced by a nutrient-rich media. Our preliminary results suggest that the induction of osteogenesis is dependent on the secondary regulation of factors that control osteogenesis through an autocrine mechanism.