PA-III rat prostate adenocarcinoma cells are capable of inducing osteoblastic reaction after inoculation onto rat skeleton. In this study PA-III cells and osteoblast-derived rat osteosarcoma cells (UMR 106 cells) were employed to characterize the cellular interactions in the PA-III cell-induced bone tumors, in vitro. Insulin-like growth factor-I (IGF-I) and conditioned media (CM) of UMR 106 cells stimlated tritiated-thymidine incorporation into the DNA of PA-III cells growing in serum-free media. This effect was inhibited by monoclonal anti-hIGF-I antibody. In addition PA-III cell CM contained proteinolytic activity for the IGF-binding proteins of UMR 106 cell CM (IGFBP-1 and -2). This proteinase activity hydrolyzed also benzyloxycarbonyl-lysine thiobenzyl ester (BLT) and its action on IGFBPs and BLT was inhibited by benzamidine and aprotinin. Proteinase activity of PA-III cell CM when bound covalently to tritiated-dilsopropylfluoro-phosphate (DFP) and then analyzed on SDS-PAGE gel electrophoresis, revealed the presence of radioactivity linked with a 35 kDa protein band. This proteinase was eluted in the void volume of the G-50 sephadex column and was retained on and eluted from p-benzamidine affinity column. The 35 kDa proteinase was retained on and was eluted from cartridges of the C18 silica by 80% acetonitrile over 0.1% trifuroacetic acid. This partially purified material hydrolyzed BLT substrate and IGFBPs of UMR 106 cell CM and its effect was inhibited by benzamidine and aprotinin. These data indicate that PA-III cell CM contains a 35 kDa proteinase capable of digesting the IGFBPs and thus increases the bioavailability of osteoblast-derived IGFs. This mechanism may participate in the pathophysiology of the PA-III cell-induced bone tumor and its subsequent osteoblastic reaction.