Articular cartilage from arthritic joints of rats immunized with type II collagen is severely depleted of proteoglycans. Depletion begins within 48 hours after the onset of inflammation, prior to extensive pannus formation, and may represent a critical first step in cartilage destruction. We have immunolocalized stromelysin, an enzyme that is believed to play a major role in the pathologic degradation of proteoglycans, in the joints of rats with collagen-induced arthritis. Immunoperoxidase staining of frozen tissue sections demonstrated the presence of stromelysin in both the synovium and chondrocytes. In contrast, collagenase was localized primarily to the pannus-cartilage junction. Neither enzyme was detectable in joints from normal animals. To test the hypothesis that chondrocytes respond directly to inflammatory mediators by increasing the production of stromelysin, isolated chrondrocytes were incubated with various concentrations of interleukin-1. The culture media were also assayed for the presence of stromelysin by immunoreactivity on Western blots and by analysis of enzymatic activity on casein substrate gels. A 3-fold increase in a doublet of proteins synthesized in response to 10 units/ml of interleukin-1 was observed. These proteins also immunoreacted with the stromelysin antibody and degraded casein. Northern blotting results established that the increased levels of stromelysin were accompanied by increases in stromelysin-specific messenger RNA levels. These results suggest that stromelysin is responsible for proteoglycan degradation in early inflammatory arthritis, and that chondrocytes may play a direct role in the earliest stages of the degradation of their own matrices.