To identify the cell types which produce BMP and TGF-beta during fracture healing and to elucidate the interactions between BMP and TGF-beta in regulating cell proliferation and differentiation at various stages, an experimental model of fracture healing in the rabbit mandible was established and the expression of BMP-2 and TGF-beta 1 mRNA was studied at different healing stages by in situ hybridization. The results showed that undifferentiated mesenchymal cells, differentiating osteoblasts and chondroblasts, had higher levels of BMP-2 mRNA at the stage of intramembranous bone formation and early chondrogenesis, while the level of TGF-beta 1 mRNA was higher in chondrocytes and active differentiated osteoblasts during chondrogenesis and endochondral ossification, respectively. We conclude that BMP-2 expression was correlated with the differentiation of mesenchymal cells into osteoblasts and chondrocytes. TGF-beta 1 mRNA expression was closely associated with the active synthetic stage of osteoblasts and chondrocytes. These observations suggest that both BMP and TGF-beta are involved in the regulation of fracture healing. BMP may play an important role in bone induction and early chondrogenesis, while TGF-beta regulates the proliferation and active synthetic ability of chondrocytes and osteoblasts.