Partially purified extracts from newborn calf articular cartilage were found to induce cartilage and bone when subcutaneously implanted in rats. This activity showed characteristics of bone morphogenetic proteins (BMPs). Degenerate oligonucleotide primer sets derived from the highly conserved carboxyl-terminal region of the BMP family were designed and used in reverse transcription-polymerase chain reactions with poly(A)+ RNA from articular cartilage as template to determine which BMPs are produced by chondrocytes. Two novel members of the transforming growth factor-beta (TGF-beta) superfamily were identified and designated cartilage-derived morphogenetic protein-1 (CDMP-1) and -2 (CDMP-2). Their carboxyl-terminal TGF-beta domains are 82% identical, thus defining a novel subfamily most closely related to BMP-5, BMP-6, and osteogenic protein-1. Northern analyses showed that both genes are predominantly expressed in cartilaginous tissues. In situ hybridization and immunostaining of sections from human embryos showed that CDMP-1 was predominantly found at the stage of precartilaginous mesenchymal condensation and throughout the cartilaginous cores of the developing long bones, whereas CDMP-2 expression was restricted to the hypertrophic chondrocytes of ossifying long bone centers. Neither gene was detectable in the axial skeleton during human embryonic development. The cartilage-specific localization pattern of these novel TGF-beta superfamily members, which contrasts with the more ubiquitous presence of other BMP family members, suggests a potential role for these proteins in chondrocyte differentiation and growth of long bones.