Chondrocytes are unique to cartilage and the study of these cells in vitro is important for advancing our understanding of the role of these cells in normal homeostasis and disease including osteoarthritis (OA). As there are limitations to the culture of primary chondrocytes, cell lines have been developed to overcome some of these obstacles. In this study, we developed a procedure to immortalize and characterize chondrocyte cell lines from mouse xiphisternum. The cells displayed a polygonal to fibroblastic morphology in monolayer culture. Gene expression studies using quantitative PCR showed that the cell lines responded to bone morphogenetic protein 2 (BMP-2) by increased expression of matrix molecules, aggrecan, and type II collagen together with transcriptional factor, Sox9. Stimulation by IL-1 results in the increased expression of catabolic effectors including MMP-13, nitric oxide synthase, ADAMTS4, and ADAMTS5. Cells cultured in alginate responded to BMP-2 by increased synthesis of proteoglycan (PG), a major matrix molecule of cartilage. IL-1 treatment of cells in alginate results in increased release of PG into the conditioned media. Further analysis of the media showed the presence of Aggrecanase-cleaved aggrecan fragments, a signature of matrix degradation. These results show that the xiphisternum chondrocyte cell lines preserve their chondrocyte phenotype cultured in either monolayer or 3-dimensional alginate bead culture systems. In summary, this study describes the establishment of chondrocyte cell lines from the mouse xiphisternum that may be useful as a surrogate model system to understand chondrocyte biology and to shed light on the underlying mechanism of pathogenesis in OA. J. Cell. Physiol. 209: 551–559, 2006. © 2006 Wiley-Liss, Inc.