Some recent studies have suggested that cells of mesenchymal origin might participate in the organic bone matrix dissolution. In the present study, collagen synthesis and degradation by human mesenchymal stem cell (MSC) derived cells were studied at early stage of osteoblast differentiation using a special two-stage in vitro culture model. In this model, cells were cultured on bovine bone slices, which were first resorbed by osteoclasts. Synthesis of type I collagen was markedly enhanced when mesenchymal cells were cultured on bone matrix. After thorough osteoclast removal, MSC derived cells were capable of degrading the organic bone matrix, and caused a release of type I collagen degradation product (ICTP) into the culture medium. This was inhibited by matrix metalloproteinase (MMP) inhibitor, while cysteine proteinase inhibitor or estrogen had no inhibitory effect. Western blot analysis or gelatin zymography confirmed the presence of MMP-2, -8, -13 and -14, but not MMP-1 or -9, in the differentiated cells. 17beta-Estradiol was found to increase the expression of MMP-2 and -14 by these cells. Finally, scanning electron microscopy showed that the differentiating human MSCs were capable of degrading organic bone matrix remnants from the bottom of the resorption lacunae. These data support the hypothesis that collagen cleavage by the same cells that are subsequently responsible for bone formation is MMP mediated process and is an important step coupling bone formation into bone resorption.