In an effort to clarify the regulation of distribution and actions of transforming growth factor (TGF)-beta in bone, TGF-beta 1 binding to extracted bone matrix proteins and the influence of such binding on TGF-beta 1 actions were examined. In-gel binding of 125I-TGF-beta 1 using extracts from mineralized bovine bone matrix demonstrated that 125I-TGF-beta 1 was almost exclusively bound to a proteoglycan, decorin. The binding was via the core protein of decorin. Scatchard analysis of the binding of 125I-TGF-beta 1 to immobilized decorin purified from osteoblastic MC3T3-E1 cell conditioned medium revealed that there were two specific binding sites with high and low affinities for TGF-beta 1 (Kd = 0.3 and 5 nM, respectively). The addition of decorin along with TGF-beta 1 enhanced the inhibitory effect of TGF-beta 1 on MC3T3-E1 cell proliferation. Decorin in itself did not affect their proliferation. These cells possessed types I and II TGF-beta receptors and betaglycan, and the addition of decorin increased the binding of 125I-TGF-beta 1 to all these receptors. These results demonstrate that the core protein of decorin specifically binds TGF-beta 1 with high affinities and that the binding of TGF-beta 1 to decorin increases TGF-beta 1 binding to its receptors and enhances its bioactivity. Because TGF-beta is released by bone resorption along with matrix proteins, including decorin, and because it stimulates the synthesis of these proteins, it is suggested that the binding and enhancement of the activities of TGF-beta by decorin may play a role in maintaining bone formation during bone remodeling process.