We have characterized the interaction of insulin-like growth factor I/somatomedin C (IGF-I/Sm-C) with its plasma membrane receptors on cultured rat chondrocytes. Our studies have demonstrated that [125I]IGF-I/Sm-C binding to these receptors is a relatively specific, reversible, and time-, temperature-, pH-, and concentration-dependent process. Insulin displaces [125I]IGF-I/Sm-C from its receptors on rat chondrocytes, but with a potency only 10(-4) that of IGF (I and II). Using the known lysosomotropic agents chloroquine and ammonium chloride as well as the substituted diamine monodansylcadaverine, we have shown that this 125I-labeled Sm is internalized and partially degraded via the lysosomal pathway. These conclusions have been further supported by photoaffinity labeling studies which, surprisingly, demonstrate that the predominant IGF receptor on chondrocytes is the type II receptor, and that [125I]IGF-I/Sm-C is bound primarily in this ligand-receptor complex which is internalized and degraded, in part, by lysosomes.