Bone-marrow stromal cells can differentiate into multiple mesenchymal lineages including cartilage and bone. When these cells are seeded in high-density `pellet culture', they undergo chondrogenesis and form a tissue that is morphologically and biochemically defined as cartilage. Here, we show that dual chondro-osteogenic differentiation can be obtained in the same micromass culture of human bone-marrow stromal cells. Human bone-marrow stromal cells were pellet cultured for 4 weeks in chondro-inductive medium. Cartilage `beads' resulting from the micromass culture were then subcultured for further 1-3 weeks in osteo-inductive medium. This resulted in the formation of a distinct mineralized bony collar around hyaline cartilage. During the chondrogenesis phase, type I collagen and bone sialoprotein were produced in the outer portion of the cartilage bead, which, upon subsequent exposure to β-glycerophosphate, mineralized and accumulated extracellular bone sialoprotein and osteocalcin. Our modification of the pellet culture system results in the formation of a chondro-osseous `organoid' structurally reminiscent of pre-invasion endochondral rudiments, in which a bony collar forms around hyaline cartilage. The transition from a cell culture to an organ culture dimension featured by our system provides a suitable model for the dissection of molecular determinants of endochondral bone formation, which unfolds in a precisely defined spatial and temporal frame