The present study investigated the development of parathyroid hormone (PTH)-responsive adenylate cyclase (AC) activity in chondrogenic cells differentiating from chick limb mesenchyme in culture. Mesenchyme from stage 25 chick embryos was removed from the distal tip (0.3 mm) of limb buds and cultured for a 6 day period in high density micromass cultures. Under these conditions, initial appearance of cartilage matrix and chondroblasts occurred on day 3 of culture and rapidly progressed over the next 3 days to produce, by day 6, a highly confluent and homogeneous layer of cartilage matrix and chondrocytes. Cells initially dissociated from limb mesenchyme on day 0 were essentially unresponsive to PTH, but development of AC-coupled, PTH receptors occurred rapidly during the initial 24 hours of culture. Based on data from dose-response experiments, prechondrogenic cells on day 1 of culture had synthesized their full complement of these receptors relative to fully differentiated chondrocytes in cultures at day 6. Inhibition of chondrocyte differentiation by retinoic acid did not significantly affect the initial development of AC-coupled, PTH receptors but it almost completely prevented synthesis of cartilage matrix. The results indicate that development of AC-coupled PTH receptors during chondrogenesis precedes, by at least 48 hours, overt differentiation of chondrocytes and the accumulation of cartilage-specific extracellular matrix and appears to represent one of the earliest reported events in chondrocyte differentiation. The lack of effect of retinoids on development of these receptors indicates that the inhibitory effects of retinoids on differentiating cartilage are at least somewhat specific for genes regulating synthesis of extracellular matrix molecules.