Cartilage provides the template for endochondral ossification and is crucial for determining the length and width of the skeleton. Transgenic mice with targeted expression of recombinant cartilage-derived morphogenetic protein-1 (CDMP-1), a member of the bone morphogenetic protein family, were created to investigate the role of CDMP-1 in skeletal formation. The mice exhibited chondrodysplasia with expanded cartilage, which consists of the enlarged hypertrophic zone and the reduced proliferating chondrocyte zone. Histologically, CDMP-1 increased the number of chondroprogenitor cells and accelerated chondrocyte differentiation to hypertrophy. Expression of CDMP-1 in the notochord inhibited vertebral body formation by blocking migration of sclerotome cells to the notochord. These results indicate that CDMP-1 antagonizes the ventralization signals from the notochord. Our study suggests a molecular mechanism by which CDMP-1 regulates the formation, growth, and differentiation of the skeletal elements.