The regulatory role of parathyroid hormone (PTH)/PTH-related peptide (PTHrP) signaling has been implicated in embryonic skeletal development. Here, we studied chondrogenic differentiation of the mouse embryonal carcinoma-derived clonal cell line ATDC5 as a model of chondrogenesis in the early stages of endochondral bone development. ATDC5 cells retain the properties of chondroprogenitor cells, and rapidly proliferate in the presence of 5% FBS. Insulin (10 micrograms/ml) induced chondrogenic differentiation of the cells in a postconfluent phase through a cellular condensation process, resulting in the formation of cartilage nodules, as evidenced by expression of type II collagen and aggrecan genes. We found that differentiated cultures of ATDC5 cells abundantly expressed the high affinity receptor for PTH (Mr approximately 80 kD; Kd = 3.9 nM; 3.2 x 10(5) sites/cell). The receptors on differentiated cells were functionally active, as evidenced by a PTH-dependent activation of adenylate cyclase. Specific binding of PTH to cells markedly increased with the formation of cartilage nodules, while undifferentiated cells failed to show specific binding of PTH. Northern blot analysis indicated that expression of the PTH/PTHrP receptor gene became detectable at the early stage of chondrogenesis of ATDC5 cells, preceding induction of aggrecan gene expression. Expression of the PTH/PTHrP receptor gene was undetectable in undifferentiated cells. The level of PTH/PTHrP receptor mRNA was markedly elevated parallel to that of type II collagen mRNA. These lines of evidence suggest that the expression of functional PTH/PTHrP receptor is associated with the onset of chondrogenesis. In addition, activation of the receptor by exogenous PTH or PTHrP significantly interfered with cellular condensation and the subsequent formation of cartilage nodules, suggesting a novel site of PTHrP action.