Chick periosteum-derived mesenchymal cells have been reported to exhibit both osteogenic and chondrogenic potentials in high cell density culture conditions. Using this culture system, the effects of transforming growth factor-beta (TGFbeta) on proliferation and differentiation of periosteal mesenchymal cells were studied. Supplementation with TGFbetaI at doses of 0.3-1.0 ng/ml shortened the time course of chondrogenesis and increased the amount of cartilage formed in the lower part of the culture. On the other hand, the amount of bone formed in the upper part of the culture decreased with TGFbeta treatment, whereas the time course of osteogenesis remained unaffected.