When perichondrium-free pieces of embryonic quail epiphyseal cartilage are incubated on the chorioallantoic membranes of chick embryos, 2 developmental changes are observed. First, most grafts develop a periosteum in which the osteoblasts and osteocytes are of donor, i.e., chondrocytic origin. No such periosteum is observed around explants of demineralized, inductive bone matrix. Second, the matrix surrounding some chondrocytes within the original graft became more bone-like with respect to staining pattern, birefringence and collagen morphology. We conclude that, under some conditions, the avian chondrocyte may in situ or subsequent to release from the cartilage lacuna synthesize a bone-like matrix and, in this sense, be thought to have undergone a "transformation" into an osteocytic or osteoblastic type of cell.