Here we report on the structure, expression, and function of a novel cartilage-specific gene coding for a 17-kDa small, highly charged, and secreted protein that we termed Ucma (unique cartilage matrix-associated protein). The protein is processed by a furin-like protease into an N-terminal peptide of 37 amino acids and a C-terminal fragment (Ucma-C) of 74 amino acids. Ucma is highly conserved between mouse, rat, human, dog, clawed frog, and zebrafish, but has no homology to other known proteins. Remarkable are 1-2 tyrosine sulfate residues/molecule and dense clusters of acidic and basic residues in the C-terminal part. In the developing mouse skeleton Ucma mRNA is expressed in resting chondrocytes in the distal and peripheral zones of epiphyseal and vertebral cartilage. Ucma is secreted into the extracellular matrix as an uncleaved precursor and shows the same restricted distribution pattern in cartilage as Ucma mRNA. In contrast, antibodies prepared against the processed C-terminal fragment located Ucma-C in the entire cartilage matrix, indicating that it either diffuses or is retained until chondrocytes reach hypertrophy. During differentiation of an MC615 chondrocyte subclone in vitro, Ucma expression parallels largely the expression of collagen II and decreases with maturation toward hypertrophic cells. Recombinant Ucma-C does not affect expression of chondrocyte-specific genes or proliferation of chondrocytes, but interferes with osteogenic differentiation of primary osteoblasts, mesenchymal stem cells, and MC3T3-E1 pre-osteoblasts. These findings suggest that Ucma may be involved in the negative control of osteogenic differentiation of osteochondrogenic precursor cells in peripheral zones of fetal cartilage and at the cartilage-bone interface.