Recent progress in the study of regulation of bone and cartilage differentiation has come from the isolation, cloning, and expression of genes encoding bone morphogenetic proteins (BMPs). BMPs initiate cartilage and bone formation in a sequential cascade. Their pleiotropic effects on chemotaxis, mitosis, and differentiation are based on concentration-dependent thresholds. The existence of multiple members of the BMP family raises issues concerning functional redundancy. Current work in progress in different laboratories has revealed that BMP-2 or BMP-4 gene knockout by homologous recombination results, surprisingly, in embryonic lethality. Cartilage and bone differentiation during endochondral development involves a continuum of steps: initiation, promotion, maintenance, modeling, and termination. The signaling factors for initiation and maintenance are being defined at the molecular level, and future studies will focus on the gene regulation of initial signaling molecules such as BMPs. Critical progress in the determination of the role of BMPs in bone development has been accomplished by systematic study of skeletal mutations such as short ear and brachypodism in mice. The accelerating pace of advance in this area augurs well for the resolution of the molecular basis of morphogenesis of bone and cartilage.