Since transforming growth factor-beta (TGF-beta) has been shown earlier to induce the chondrocyte phenotype in embryonic rat mesenchymal cells with production of cartilage-specific type II collagen and proteoglycans, it was of interest to determine whether the factor could also influence the differentiation state of articular chondrocytes maintained in monolayer culture. Using rabbit articular chondrocytes (RAC) in primary and passaged cultures, we demonstrate that the loss of the phenotype accompanying the subculture was not significantly influenced by the presence of TGF-beta. The factor exerted an inhibitory effect on collagen synthesis in a 6-day exposure of primary cultures whereas it stimulated that production throughout the subsequent passages. Steady-state levels of mRNAs encoding type I, II, and III procollagens were correlated with the amounts of cognate proteins produced, suggesting that both inhibition and stimulation were exerted at a transcriptional level. The pattern of proteoglycans produced in primary culture, essentially chondroitin sulfate-containing molecules, was altered by the subculture-induced RAC dedifferentiation, as shown by decrease in chondroitin sulfate formation and progressive appearance of hyaluronic acid. Contrasting with its effect on collagen synthesis, TGF-beta did not significantly change the proteoglycan production of RAC in our conditions whenever it was added at the beginning of the primary cultures or in the subsequent passages. Altogether, our data indicate that the effect of TGF-beta on RAC collagen synthesis depends on whether they are fully differentiated. Moreover, the data show that the factor does not prevent the loss of RAC phenotype but rather contributes to the dedifferentiation process since it exerts differential effects on the major components of extracellular matrix, collagen, and proteoglycans.