We investigated the effects of bone morphogenetic protein (BMP)-2, a member of the transforming growth factor-beta superfamily, on the regulation of the chondrocyte phenotype, and we identified signaling molecules involved in this regulation. BMP-2 triggers three concomitant responses in mouse primary chondrocytes and chondrocytic MC615 cells. First, BMP-2 stimulates expression or synthesis of type II collagen. Second, BMP-2 induces expression of molecular markers characteristic of pre- and hypertrophic chondrocytes, such as Indian hedgehog, parathyroid hormone/parathyroid hormone-related peptide receptor, type X collagen, and alkaline phosphatase. Third, BMP-2 induces osteocalcin expression, a specific trait of osteoblasts. Constitutively active forms of transforming growth factor-beta family type I receptors and Smad proteins were overexpressed to address their role in this process. Activin receptor-like kinase (ALK)-1, ALK-2, ALK-3, and ALK-6 were able to reproduce the hypertrophic maturation of chondrocytes induced by BMP-2. In addition, ALK-2 mimicked further the osteoblastic differentiation of chondrocytes induced by BMP-2. In the presence of BMP-2, Smad1, Smad5, and Smad8 potentiated the hypertrophic maturation of chondrocytes, but failed to induce osteocalcin expression. Smad6 and Smad7 impaired chondrocytic expression and osteoblastic differentiation induced by BMP-2. Thus, our results indicate that Smad-mediated pathways are essential for the regulation of the different steps of chondrocyte and osteoblast differentiation and suggest that additional Smad-independent pathways might be activated by ALK-2.