Regulated differentiation of chondrocytes is essential for both normal skeletal development and maintenance of articular cartilage. The intracellular pathways that control these events are incompletely understood, and our ability to modulate the chondrocyte phenotype in vivo or in vitro is therefore limited. Here we examine the role played by one prominent group of intracellular signalling proteins, the Src family kinases, in regulating the chondrocyte phenotype. We show that the Src family kinase Lyn exhibits a dynamic expression pattern in the chondrogenic cell line ATDC5 and in a mixed population of embryonic mouse chondrocytes in high-density monolayer culture. Inhibition of Src kinase activity using the pharmacological compound PP2 (4-Amino-5-(4-chlorophenyl)-7-(t-butyl)pyrazolo [3,4-d]pyrimidine) strongly reduced the number of primary mouse chondrocytes. In parallel, PP2 treatment increased the expression of both early markers (such as Sox9, collagen type II, aggrecan and xylosyltransferases) and late markers (collagen type X, Indian hedgehog and p57) markers of chondrocyte differentiation. Interestingly, PP2 repressed the expression of the Src family members Lyn, Frk and Hck. It also reversed morphological de-differentiation of chondrocytes in monolayer culture and induced rounding of chondrocytes, and reduced stress fibre formation and focal adhesion kinase phosphorylation. We conclude that the Src kinase inhibitor PP2 promotes chondrogenic gene expression and morphology in monolayer culture. Strategies to block Src activity might therefore be useful both in tissue engineering of cartilage and in the maintenance of the chondrocyte phenotype in diseases such as osteoarthritis.