High-density chick limb bud cell culture is a useful model to study mesenchymal condensatifons and chondrogenesis. Most previous studies have focused on the effects of soluble reagents on terminal chondrogenic differentiation and have not defined the early cellular processes and signaling events. In this study, we defined five successive stages in the differentiation process: 1) dissociated cells, 2) small aggregates, 3) formation of cell clusters, 4) precartilaginous condensations, and 5) cartilage nodule. We used RCAS retrovirus-mediated Wnt-7a gene transduction to test the effect of Wnt-7a on the differentiation process. We found that Wnt-7a suppressed chondrogenic differentiation. Wnt-7a did not inhibit the initiation of condensation formation but blocked the progression of precartilaginous condensations to cartilage nodules. The Wnt-7a-transduced cultures showed characteristics of a less mature culture with persistent expression of NCAM, N-cadherin, wider distribution of integrin β1 and fibronectin, and suppression of tenascin-C. BMP-2 is known to enhance chondrogenic differentiation in these cultures by promoting cell clusters to form continuous sheet-like precartilaginous condensations. However, cultures exposed to both BMP-2 and Wnt-7a showed inhibition of chondrogenic differentiation. Different signaling molecules such as Wnt-7a and BMP-2 may have antagonistic effects on cartilage differentiation and the gradient of the two molecules may be involved in defining the boundaries of the initial precartilaginous condensation. We propose that the shape of the precartilaginous condensations may be modulated by local concentrations of signaling molecules, such as Wnt-7a and BMP-2, which act to alter cell-substrate and cell-cell adhesions. J. Cell. Physiol. 180:314–324, 1999. © 1999 Wiley-Liss, Inc.