In developing murine growth plates, chondrocytes near the articular surface (periarticular chondrocytes) proliferate, differentiate into flat column-forming proliferating cells (columnar chondrocytes), stop dividing and finally differentiate into hypertrophic cells. Indian hedgehog (Ihh), which is predominantly expressed in prehypertrophic cells, stimulates expression of parathyroid hormone (PTH)-related peptide (PTHrP) which negatively regulates terminal chondrocyte differentiation through the PTH/PTHrP receptor (PPR). However, the roles of PTHrP and Ihh in regulating earlier steps in chondrocyte differentiation are unclear. We present novel mouse models with PPR abnormalities that help clarify these roles. In mice with chondrocyte-specific PPR ablation and mice with reduced PPR expression, chondrocyte differentiation was accelerated not only at the terminal step but also at an earlier step: periarticular to columnar differentiation. In these models, upregulation of Ihh action in the periarticular region was also observed. In the third model in which the PPR was disrupted in about 30% of columnar chondrocytes, Ihh action in the periarticular chondrocytes was upregulated because of ectopically differentiated hypertrophic chondrocytes that had lost PPR. Acceleration of periarticular to columnar differentiation was also noted in this mouse, while most of periarticular chondrocytes retained PPR signaling. These data suggest that Ihh positively controls differentiation of periarticular chondrocytes independently of PTHrP. Thus, chondrocyte differentiation is controlled at multiple steps by PTHrP and Ihh through the mutual regulation of their activities.