The expression of tissue transglutaminase in skeletal tissues is strictly regulated and correlates with chondrocyte differentiation and cartilage calcification in endochondral bone formation and in maturation of tracheal cartilage (Aeschlimann, D., A. Wetterwald, H. Fleisch, and M. Paulsson. 1993. J. Cell Biol. 120:1461-1470). We now demonstrate the transglutaminase reaction product, the gamma-glutamyl-epsilon-lysine cross-link, in the matrix of hypertrophic cartilage using a novel cross-link specific antibody. Incorporation of the synthetic transglutaminase substrate monodansylcadaverine (amine donor) in cultured tracheal explants reveals enzyme activity in the pericellular matrix of hypertrophic chondrocytes in the central, calcifying areas of the horseshoe-shaped cartilages. One predominant glutaminyl substrate (amine acceptor) in the chondrocyte matrix is osteonectin as revealed by incorporation of the dansyl label in culture. Indeed, nonreducible osteonectin-containing complexes of approximately 65, 90, and 175 kD can be extracted from mature tracheal cartilage. In vitro cross-linking of osteonectin by tissue transglutaminase gives similar products of approximately 90 and 175 kD, indicating that the complexes in cartilage represent osteonectin oligomers. The demonstration of extracellular transglutaminase activity in differentiating cartilage, i.e., cross-linking of osteonectin in situ, shows that tissue transglutaminase-catalyzed cross-linking is a physiological mechanism for cartilage matrix stabilization.