Multipotential mesenchymal stem cells capable of chondro-osseous induction contribute to the endochondral callus of healing fractured bone. Microvascular pericytes serving the role of multipotential mesenchymal stem cells are considered osteoprogenitors because they express type I collagen, alkaline phosphatase enzyme activity, osteocalcin immunoreactivity, and bone sialoprotein mRNA. Previous electron microscopic studies indicate that this cell type has a contribution to the fracture callus. Limited data suggest that pericytes may also assume a chondrogenic phenotype. We undertook in vitro studies to understand how the chondro-osseous phenotype of the pericyte might be regulated. Using Northern analysis and semiquantitative reverse transcriptase-polymerase chain reaction (RT-PCR), we found that cultured pericytes produce aggrecan and type II collagen mRNA indicating their chondrogenic potential. Aggrecan message is elevated by BMP-2 as analyzed by both Northern hybridization and RT-PCR. This finding suggests a regulatory role for this morphogen on this phenotype in pericytes. RT-PCR amplified versican product was also associated with pericyte cultures but was not affected by BMP-2. Our data strongly support a chondrogenic role for the pericyte and that the phenotype is regulated at least in part by BMP.