Endochondral bone formation involves the progression of epiphyseal growth plate chondrocytes through a sequence of developmental stages which include proliferation, differentiation, hypertrophy, and matrix calcification. To study this highly coordinated process, we infected growth plate chondrocytes with Rous sarcoma virus (RSV) and studied the effects of RSV transformation on cell proliferation, differentiation, matrix synthesis, and mineralization. The RSV-transformed chondrocytes exhibited a distinct bipolar, fibroblast-like morphology, while the mock-infected chondrocytes had a typical polygonal morphology. The RSV-transformed chondrocytes actively synthesized extracellular matrix proteins consisting mainly of type I collagen and fibronectin. RSV-transformed cells produced much less type X collagen than was produced by mock-transformed cells. There also was a significant reduction of proteoglycan levels secreted in both the cell-matrix layer and culture media from RSV-transformed chondrocytes. RSV-transformed chondrocytes expressed two- to- threefold more matrix metalloproteinase, while expressing only one-half to one-third of the alkaline phosphatase activity of mock infected cells. Finally, RSV-transformed chondrocytes failed to calcify the extracellular matrix, while mock-transformed cells deposited high levels of calcium and phosphate into their extracellular matrix. These results collectively indicate that RSV transformation disrupts the preprogrammed differentiation pattern of growth plate chondrocytes and inhibit chondrocyte terminal differentiation and mineralization. They also suggest that the expression of extracellular matrix proteins, type II and type X collagens, and the cartilage proteoglycans are important for chondrocyte terminal differentiation and matrix calcification.