We have established two clonal cell lines, designated SM1/9 and SM25/3 from the mandibular condyles of newborn BALB/c mice by immortalization with the SV40 large T antigen. These cells have a high proliferative activity and have been maintained in culture for over 50 passages. They are polygonal in shape. Electron microscopic studies indicate an immature phenotype for both clones and a lack of prominent intracellular filaments typical of fibroblasts. SM25/3 demonstrates different biological properties as compared to SM1/9, it is tumourigenic in nude mice, has a faster growth rate and exhibits less differentiated features. Both cell lines have low constitutive levels of alkaline phosphatase, and the activity of this enzyme is increased significantly in a dose and confluency dependent manner by retinoic acid and 1,25 (OH)2 vitamin D3. The cells express transcripts for retinoic acid receptors mRAR-alpha and mRAR-gamma but not for mRAR-beta. They also express mRNA for the 1,25 (OH)2 vitamin D3 receptor. They co-express transcripts for collagen types I, II, III. Expression of mRNA for extracellular matrix proteins such as biglycan, osteopontin, PAI-1 is detected. Cultured cells do not express mRNA for osteocalcin and this transcript is not inducible with 1,25 (OH)2 vitamin D3 or retinoic acid. Chondrocyte markers such as link protein and aggrecan are not detected. In vitro assays indicate that the cell lines have a limited capacity for osteogenic or chondrogenic differentiation. Similarly agarose culture experiments and extended treatment with retinoic acid indicate that they do not resemble dedifferentiated chondrocytes. Both the cell lines appear to express a phenotype intermediate to osteoblasts and chondroblasts and possibly represent transitional differentiation stages of the progenitor cells of the mandibular condyle. These cells could serve as useful models in elucidating the pathways of early mesenchymal cell differentiation.