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Cells in functional tissues execute various collective activities to achieve diverse ordered processes including wound healing, organogenesis, and tumor formation. How a group of individually operating cells initiate such complex collective processes is still not clear. Here, we report that cells in 3D extracellular matrix (ECM) initiate collective behavior by forming cell-ECM network when the cells are within a critical distance from each other. We employed compaction of free-floating (FF) 3D collagen gels with embedded fibroblasts as a model system to study collective behavior and found a sharp transition in the amount of compaction as a function of cell-cell distance, reminiscent of phase transition in materials. Within the critical distance, cells remodel the ECM irreversibly, and form dense collagen bridges between each other resulting in the formation of a network. Beyond the critical distance, cells exhibit Brownian dynamics and only deform the matrix reversibly in a transient manner with no memory of history, thus maintaining the disorder. Network formation seems to be a necessary and sufficient condition to trigger collective behavior and a disorder-to order transition. STATEMENT OF SIGNIFICANCE: Macroscopic compaction of in vitro collagen gels is mediated by collective mechanical interaction of cells. Previous studies on cell-induced ECM compaction suggest the existence of a critical cell density and phase transition associated with this phenomenon. Cell-mediated mechanical remodeling and global compaction of ECM has mostly been studied at steady state. Our study reveals a link between a transition in cell dynamics and material microstructure as cells collectively compact collagen gels. It underscores the significance of temporal evolution of these cell-ECM systems in understanding the mechanism of such collective action and provides insights on the process from a mechanistic viewpoint. These insights can be valuable in understanding dynamic pathological processes such as, cancer progression and wound healing, as well as engineering biomaterials and regenerative tissue mimics.