We have evaluated the importance of the CREB family of transcriptional activators for endochondral bone formation by expressing a potent dominant negative CREB inhibitor (A-CREB) in growth plate chondrocytes of transgenic mice. A-CREB transgenic mice exhibited short-limbed dwarfism and died minutes after birth, apparently due to respiratory failure from a diminished rib cage circumference. Consistent with the robust Ser133 phosphorylation and, hence, activation of CREB in chondrocytes within the proliferative zone of wild-type cartilage during development, chondrocytes in A-CREB mutant cartilage exhibited a profound decrease in proliferative index and a delay in hypertrophy. Correspondingly, the expression of certain signaling molecules in cartilage, most notably the Indian hedgehog (Ihh) receptor patched (Ptch), was lower in A-CREB expressing versus wild-type chondrocytes. CREB appears to promote Ptch expression in proliferating chondrocytes via an Ihh-independent pathway; phospho-CREB levels were comparable in cartilage from Ihh^−/− and wild-type mice. These results demonstrate the presence of a distinct signaling pathway in developing bone that potentiates Ihh signaling and regulates chondrocyte proliferation, at least in part, via the CREB family of activators.