Abstract We examined osteo-chondrogenic differentiation of a human chondrocytic cell line (USAC) by rhBMP-2 in vivo and in vitro. USAC was established from a transplanted tumor to athymic mouse derived from an osteogenic sarcoma of the mandible. USAC usually shows chondrocytic phenotypes in vivo and in vitro. rhBMP-2 up-regulated not only the mRNA expression of types II and X collagen, but also the mRNA expression of osteocalcin and Cbfa1 in USAC cells in vitro. In vivo experimental cartilaginous tissue formation was prominent in the chamber with rhBMP-2 when compared with the chamber without rhBMP-2. USAC cells implanted with rhBMP-2 often formed osteoid-like tissues surrounded by osteoblastic cells positive for type I collagen. rhBMP up-regulated Ihh, and the expression of Ihh was well correlated with osteo-chondrogenic cell differentiation. These results suggest that rhBMP-2 promotes chondrogenesis and also induces osteogenic differentiation of USAC cells in vivo and in vitro through up-regulation of Ihh.