Osteoblasts produce a 100 kDa soluble form of latent transforming growth factor beta (TGF-beta) as well as a 290 kDa form containing latent TGF-beta binding protein-1 (LTBP1), which targets the latent complex to the matrix for storage. The nature of the soluble and stored forms of latent TGF-beta in chondrocytes, however, is not known. In the present study, resting zone and growth zone chondrocytes from rat costochondral cartilage were cultured to fourth passage and then examined for the presence of mRNA coding for LTBP1 protein. In addition, the matrix and media were examined for LTBP1 protein and latent TGF-beta. Northern blots, RT-PCR, and in situ hybridization showed that growth zone cells expressed higher levels of LTBP1 mRNA in vitro than resting zone cells. Immunohistochemical staining for LTBP1 revealed fine fibrillar structures around the cells and in the cell matrix. When the extracellular matrix of these cultures was digested with plasmin, LTBP1 was released, as determined by immunoprecipitation. Both active and latent TGF-beta1 were found in these digests by TGF-beta1 ELISA and Western blotting. Immunoprecipitation demonstrated that the cells also secrete LTBP1 which is not associated with latent TGF-beta, in addition to LTBP1 that is associated with the 100 kDa latent TGF-beta complex. These studies show for the first time that latent TGF-beta is present in the matrix of costochondral chondrocytes and that LTBP1 is responsible for storage of this complex in the matrix. The data suggest that chondrocytes are able to regulate both the temporal and spatial activation of latent TGF-beta, even at sites distant from the cell, in a relatively avascular environment.