Transforming growth factor-type beta (TGF-beta) has been identified as a constituent of bone matrix (Seyedin, S. M., A. Y. Thompson, H. Bentz, D. M. Rosen, J. M. McPherson, A. Conti, N. R. Siegel, G. R. Gallupi, and K. A. Piez, 1986, J. Biol. Chem. 261:5693-5695). We used both developing bone and bone-forming cells in vitro to demonstrate the cellular origin of this peptide. TGF-beta mRNA was detected by Northern analysis in both developing bone tissue and fetal bovine bone-forming cells using human cDNA probes. TGF-beta was shown to be synthesized and secreted by metabolically labeled bone cell cultures by immunoprecipitation from the medium. Further, TGF-beta activity was demonstrated in conditioned media from these cultures by competitive radioreceptor and growth promotion assays. Fetal bovine bone cells (FBBC) were found to have relatively few TGF-beta receptors (5,800/cell) with an extremely low Kd of 2.2 pM (high binding affinity). In contrast to its inhibitory effects on the growth of many cell types including osteosarcoma cell lines, TGF-beta stimulated the growth of subconfluent cultures of FBBC; it had little effect on the production of collagen by these cells. We conclude that bone-forming cells are a source for the TGF-beta that is found in bone, and that these cells may be modulated by this factor in an autocrine fashion.