In situ hybridization was used to localize and quantify gene expression in rheumatoid arthritis (RA) and osteoarthritis (OA) synovial tissue. Collagenase, tissue inhibitor of metalloproteinases (TIMP), HLA–DR, and complement (C2 and C3) gene expression was studied in synovial tissue from 23 patients with RA, OA, or other inflammatory arthropathies. Gene expression was highly compartmentalized: Collagenase, TIMP, and C2 messenger RNA (mRNA) were localized primarily to the synovial lining layer; HLA–DR mRNA was prominent in the lining and in some sublining lymphoid aggregates; the C3 probe hybridized only to sublining lymphoid aggregates. Relative mRNA levels were quantified using computer‐assisted image analysis. There was significantly more collagenase, C2, C3, and HLA–DR mRNA in RA compared with OA patients. However, TIMP mRNA levels were similar in RA and OA. Expression of collagenase, TIMP, C2, C3, and HLA–DR genes correlated with the degree of synovial inflammation. The effect of intraarticular corticosteroid injection on synovial tissue gene expression was studied using serial percutaneous synovial biopsy samples from the knees of 3 RA patients. Joints were biopsied, injected with triamcinolone, and rebiopsied 1–2 weeks later. Histologic inflammation scores were lower in posttreatment synovia. Collagenase and TIMP mRNA, although abundant in presteroid samples, were nearly undetectable in post‐steroid tissues. HLA–DR mRNA levels also were significantly decreased. C2 and C3 hybridization significantly decreased in 2 of 3 patients and 1 of 3 patients, respectively. Hence, clinical response to intraarticular steroid therapy was accompanied by histologic improvement and decreased expression of genes that play a role in articular destruction. This study demonstrates the power of quantitative in situ hybridization as a tool for studying drug efficacy and mechanism.