Whereas bone morphogenetic protein (BMP)-signaling events induce maturational characteristics in vitro, recent evidence suggests that the effects of other regulators might be mediated through BMP-signaling events. The present study examines the mechanism through which retinoic acid (RA) stimulates differentiation in chicken embryonic caudal sternal chondrocyte cultures. Both RA and BMP-2 induced expression of the chondrocyte maturational marker, colX, in chondrocyte cultures by 8 d. Though the RA effect was small, it synergistically enhanced the effect of BMP-2 on colX and phosphatase activity. Inhibition of either RA or BMP signaling, with selective inhibitors, interfered with the inductive effects of these agents but also inhibited the complementary pathway, demonstrating a codependence of RA and BMP signaling during chondrocyte maturation. BMP-2 did not enhance the effects of RA on an RA-responsive reporter construct, but RA enhanced basal activity and synergistically enhanced BMP-2 stimulation of the BMP-responsive chicken type X collagen reporter. A similar synergistic interaction between RA and BMP-2 was observed on colX expression. RA did not increase the expression of the type IA BMP receptor but did markedly up-regulate the expression of Smad1 and Smad5 proteins, important participants in the BMP pathway. Inhibition of RA signaling, with the selective inhibitor AGN 193109, blocked RA-mediated induction of the Smad proteins and chondrocyte differentiation. These findings demonstrate that RA induces the expression of BMP-signaling molecules and enhances BMP effects in chondrocytes.