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During endochondral ossification, two secreted signals, Indian hedgehog (Ihh) and parathyroid hormone-related protein (PTHrP), have been shown to form a negative feedback loop regulating the onset of hypertrophic differentiation of chondrocytes. Bone morphogenetic proteins (BMPs), another family of secreted factors regulating bone formation, have been implicated as potential interactors of the Ihh/PTHrP feedback loop. To analyze the relationship between the two signaling pathways, we used an organ culture system for limb explants of mouse and chick embryos. We manipulated chondrocyte differentiation by supplementing these cultures either with BMP2, PTHrP and Sonic hedgehog as activators or with Noggin and cyclopamine as inhibitors of the BMP and Ihh/PTHrP signaling systems. Overexpression of Ihh in the cartilage elements of transgenic mice results in an upregulation of PTHrP expression and a delayed onset of hypertrophic differentiation. Noggin treatment of limbs from these mice did not antagonize the effects of Ihh overexpression. Conversely, the promotion of chondrocyte maturation induced by cyclopamine, which blocks Ihh signaling, could not be rescued with BMP2. Thus BMP signaling does not act as a secondary signal of Ihh to induce PTHrP expression or to delay the onset of hypertrophic differentiation. Similar results were obtained using cultures of chick limbs. We further investigated the role of BMP signaling in regulating proliferation and hypertrophic differentiation of chondrocytes and identified three functions of BMP signaling in this process. First we found that maintaining a normal proliferation rate requires BMP and Ihh signaling acting in parallel. We further identified a role for BMP signaling in modulating the expression of IHH: Finally, the application of Noggin to mouse limb explants resulted in advanced differentiation of terminally hypertrophic cells, implicating BMP signaling in delaying the process of hypertrophic differentiation itself. This role of BMP signaling is independent of the Ihh/PTHrP pathway.