Bone cells released from perinatal rat calvaria by digestion with clostridial peptidase were separated into two distinct populations (designated types B and C) by equilibrium density centrifugation on a two-step gradient of Percoll. They were extensively characterized by light and electron microscopy and for behaviour in culture, acid and alkaline phosphatase activity, collagen synthesis, collagenase secretion and adenylate cyclase response to parathyroid hormone (PTH) and calcitonin. Type C cells were predominantly large with up to seven nuclei and an unusual cytoplasmic appearance in cytocentrifuge preparations. They did not proliferate in culture and we have established culture conditions which prevented their overgrowth by contaminating proliferative cells. In culture these cells had low alkaline and high acid phosphatase and high aryl sulphatase activity, and synthesized little collagen. In contrast type B cells were mostly smaller and many had irregular cytoplasmic projections. In culture they became polygonal in shape, proliferated rapidly, and reached confluence in 4–5 days. These were low in aryl sulphatase and acid phosphatase, high in alkaline phosphatase activity, and synthesized labelled collagen actively with [3H]proline and ascorbic acid included in the culture medium. The two cell populations were found to differ in culture in two important further respects. First, the type C cells showed an adenylate cyclase response to calcitonin but not to PTH, while the converse was true for type B cells; this was so over at least a 20-fold range of isobutylmethyl xanthine concentration. Secondly, type C cells in culture secreted an active collagenolytic enzyme. Type B cells secreted much lower levels of a predominantly latent collagenase which required activation by mersalyl. Co-culture of type C and type B cells led to a marked reduction in the content of active collagenase in the culture medium.