The objective of these studies was to characterize some aspects of collagenase production by rabbit articular chondrocytes cultured with stimulated monocyte supernatants. Supernatants from human monocytes stimulated with 20 ng/ml bacterial lipopolysaccharide (LPS) induced the synthesis and secretion of latent collagenase by the chondrocytes beginning at 6 hr. The time course and dose response of collagenase production by the chondrocytes were identical using crude monocyte supernatants or semipurified interleukin 1 (IL-1). Recombinant or purified human interleukin 2 failed to induce collagenase production in the cultured chondrocytes. The response of the chondrocytes was inhibited by actinomycin D or cycloheximide and not by corticosteroids. Phorbol myristate acetate (PMA) alone failed to directly stimulate the chondrocytes. However, PMA led to enhanced collagenase production by chondrocytes when incubated with submaximal amounts of LPS-stimulated monocyte supernatant or semipurified IL-1. LPS alone in amounts between 0.1 and 10.0 micrograms/ml directly stimulated collagenase production in chondrocytes between 4 and 11 days in culture. These data confirm those of other laboratories that IL-1 may be the active factor in monocyte supernatants responsible for inducing collagenase production in cultured chondrocytes. Further characterization of this response indicates that the collagenase is not preformed in the cells and stimulation of its production is not inhibited by corticosteroids. Cell supernatants or IL-1 preparations containing PMA as low as 1.0 ng/ml or LPS as low as 1.0 microgram/ml may give falsely high values for IL-1 activity when assayed by stimulation of collagenase production in cultured chondrocytes.