This study evaluated chondrogenesis of mesenchymal progenitor stem cells (MSCs) cultured initially under pre-confluent monolayer conditions exposed to transforming growth factor-β (TGF-β), and subsequently in three-dimensional cultures containing insulin-like growth factor I (IGF-I). Bone marrow aspirates and chondrocytes were obtained from horses and cultured in monolayer with 0 or 5 ng of TGF-β1 per ml of medium for 6 days. TGF-β1 treated and untreated cultures were distributed to three-dimensional fibrin disks containing 0 or 100 ng of IGF-I per ml of medium to establish four treatment groups. After 13 days, cultures were assessed by toluidine blue staining, collagen types I and II in situ hybridization and immunohistochemistry, proteoglycan production by [Chondrocytic differentiation of mesenchymal stem cells sequentially exposed to transforming growth factor-β1 in monolayer and insulin-like growth factor-I in a three-dimensional matrix35S]-sulfate incorporation, and disk DNA content by fluorometry. Mesenchymal cells in monolayer cultures treated with TGF-β1 actively proliferated for the first 4 days, developed cellular rounding, and formed cell clusters. Treated MSC cultures had a two-fold increase in medium proteoglycan content. Pretreatment of MSCs with TGF-β1 followed by exposure of cells to IGF-I in three-dimensional culture significantly increased the formation of markers of chondrocytic function including disk proteoglycan content and procollagen type II mRNA production. However, proteoglycan and procollagen type II production by MSC's remained lower than parallel chondrocyte cultures. MSC pretreatment with TGF-β1 without sequential IGF-I was less effective in initiating expression of markers of chondrogenesis. This study indicates that although MSC differentiation was less than complete when compared to mature chondrocytes, chondrogenesis was observed in IGF-I supplemented cultures, particularly when used in concert with TGF-β1 pretreatment. © 2001 Orthopaedic Research Society. Published by Elsevier Science Ltd. All rights reserved.