Periosteal chondrogenesis is relevant to cartilage repair and fracture healing. Periosteum contains two distinct layers: a thick, outer fibrous layer and a thin, inner cambium layer which is adjacent to the bone. Specific chondrocyte precursors are known to exist in periosteum but have not yet been identified. In this study, the location of the chondrocyte precursors in periosteum was determined.One hundred and twenty periosteal explants from 30 2-month-old NZ rabbits were cultured for up to 42 days. Histomorphological changes and spatio-temporal localization of Col. II mRNA and protein were analysed.On day 7, chondrocyte differentiation appeared in the most juxtaosseous region in the cambium layer. Col. II mRNA and protein were also evident in the same region. By day 14, chondrocyte differentiation progressed further into the juxtaosseous cambium layer, as did Col. II mRNA and protein. With growth of the neocartilage, the cambium layer gradually diminished to the extent that by 21-28 days it was no longer evident. Cartilage growth was significant and followed an appositional pattern, growing away from the fibrous layer. The fibrous layer remained essentially unchanged from 0-42 days, without evidence of hypertrophy or atrophy. Col. II mRNA expression was never seen in the fibrous layer.From these data, three conclusions can be drawn concerning chondrogenesis from periosteum: (1) the chondrocyte precursors are located in the cambium layer of periosteum; (2) chondrogenesis commences in the juxtaosseous area in the cambium layer and progresses from the juxtaosseous region to the juxtafibrous region of the cambium layer; (3) neocartilage growth is appositional, which displaces the fibrous layer away from the cartilage already formed, as new cartilage is formed between these two layers. These findings suggest that the least differentiated (stem or reserve) cells are located in the cambium layer furthest from the bone.These findings show that the chondrocyte precursors are located in the cambium layer of periosteum. Preservation of this layer is essential for chondrogenesis. As neocartilage growth is appositional, away from the fibrous layer, it can be expected that the new cartilage deposited in and adjacent to a periosteal graft would be expected to be located on the side of the cambium layer, rather than on the side of the fibrous layer of the graft.