Loss of function mutations of Perk (eukaryotic translation initiation factor 2 alpha kinase 3) in humans and mice cause severe neonatal developmental defects, including diabetes, growth retardation and multiple skeletal dysplasias. Comprehensive analyses on bone tissue, at the cellular and molecular level in PERK‐deficient mice demonstrated that neonatal Perk−/− mice are severely osteopenic, which is caused by a deficiency in the number of mature osteoblasts, impaired osteoblast differentiation, and reduced type I collagen secretion. Impaired differentiation of osteoblasts in Perk KO mice was associated with decreased expression of Runx2 and Osterix, key regulators of osteoblast development. Reduced cell proliferation and reduced expression of key cell cycle factors including cyclin D, cyclin E, cyclin A, Cdc2, and CDK2 occur in parallel with the differentiation defect in mutant osteoblasts. In addition, the trafficking and secretion of type I collagen is compromised as manifested by abnormal retention of procollagen I in the endoplasmic reticulum, and reduced mature collagen production and mineralization. Taken together, these studies identify PERK as a novel regulator of skeletal development and osteoblast biology. J. Cell. Physiol. 217: 693–707, 2008. © 2008 Wiley‐Liss, Inc.