The molecular mechanisms by which mesenchymal cells differentiate into chondrocytes are still poorly understood. We have used the gene for a chondrocyte marker, the proα1 (II) collagen gene (Col2a1), as a model to delineate a minimal sequence needed for chondrocyte expression and identify chondrocyte-specific proteins binding to this sequence. We previously localized a cartilage-specific enhancer to 156 bp of the mouse Col2a1 intron 1. We show here that four copies of a 48-bp subsegment strongly increased promoter activity in transiently transfected rat chondrosarcoma (RCS) cells and mouse primary chondrocytes but not in 10T1/2 fibroblasts. They also directed cartilage specificity in transgenic mouse embryos. These 48 bp include two 11-bp inverted repeats with only one mismatch. Tandem copies of an 18-bp element containing the 3′ repeat strongly enhanced promoter activity in RCS cells and chondrocytes but not in fibroblasts. Transgenic mice harboring 12 copies of this 18-mer expressed luciferase in ribs and vertebrae and in isolated chondrocytes but not in noncartilaginous tissues except skin and brain. In gel retardation assays, an RCS cell-specific protein and another closely related protein expressed only in RCS cells and primary chondrocytes bound to a 10-bp sequence within the 18-mer. Mutations in these 10 bp abolished activity of the multimerized 18-bp enhancer, and deletion of these 10 bp abolished enhancer activity of 465-and 231-bp intron 1 segments. This sequence contains a low-affinity binding site for POU domain proteins, and competition experiments with a high-affinity POU domain binding site strongly suggested that the chondrocyte proteins belong to this family. Together, our results indicate that an 18-bp sequence in Col2a1 intron 1 controls chondrocyte expression and suggest that RCS cells and chondrocytes contain specific POU domain proteins involved in enhancer activity.