PTHrP regulates the rate of chondrocyte differentiation during endochondral bone formation. The expression of PTHrP and its regulation by TGF‐β, BMP‐2, and PTHrP was examined in upper sternal chondrocytes following 1, 3, and 5 days of continuous treatment. While TGF‐β stimulated the expression of PTHrP (5‐fold), PTHrP caused a slight inhibition, and BMP‐2 markedly inhibited PTHrP mRNA expression. The effect of these factors on PTHrP expression was not simply related to the maturational state of the cells, since BMP‐2 increased, while both PTHrP and TGF‐β decreased the expression of type X collagen. TGF‐β isoforms 1, 2, and 3 all stimulated PTHrP expression. Signaling events involved in the induction of PTHrP by TGF‐β were further evaluated in a PTHrP‐promoter CAT construct. The effect of TGF‐β, BMP‐2, and PTHrP on the PTHrP‐promoter paralleled their effects on mRNA expression, with TGF‐β significantly increasing CAT activity, BMP‐2 decreasing CAT activity, and PTHrP having a minimal effect. Co‐transfection of the TGF‐β signaling molecule, Smad 3, mimicked the effect of TGF‐β (induction of PTHrP promoter), while dominant negative Smad 3 inhibited the induction of the PTHrP promoter by TGF‐β. Furthermore, infection with a Smad 3‐expressing retrovirus mimicked the effects of exogenously added TGF‐β, and induced PTHrP mRNA expression in the infected chondrocyte culture. In contrast, a dominant negative Smad 3 completely inhibited PTHrP promoter stimulation by TGF‐β, but only partially blocked the effect of TGF‐β on PTHrP mRNA synthesis. These findings demonstrate that PTHrP is expressed in chondrocytes undergoing endochondral ossification, and show regulation, at least in part, by TGF‐β through Smad mediated signaling events. © 2001 Wiley‐Liss, Inc.