Chondrocyte hypertrophy is the terminal step in chondrocyte differentiation and is crucial for endochondral bone formation. How signaling pathways regulate chondrocyte hypertrophic differentiation remains incompletely understood. In this study, using a Tbx18:Cre (Tbx18Cre/+) gene-deletion approach, we selectively deleted the gene for the signaling protein SMAD family member 4 (Smad4f/f) in the limbs of mice. We found that the Smad4-deficient mice develop a prominent shortened limb, with decreased expression of chondrocyte differentiation markers, including Col2a1 and Acan, in the humerus at mid-to-late gestation. The most striking defects in these mice were the absence of stylopod elements and failure of chondrocyte hypertrophy in the humerus. Moreover, expression levels of the chondrocyte hypertrophy–related markers Col10a1 and Panx3 were significantly decreased. Of note, we also observed that the expression of runt-related transcription factor 2 (Runx2), a critical mediator of chondrocyte hypertrophy, was also down-regulated in Smad4-deficient limbs. To determine how the skeletal defects arose in the mouse mutants, we performed RNA-Seq with ChIP-Seq analyses and found that Smad4 directly binds to regulatory elements in the Runx2 promoter. Our results suggest a new mechanism whereby Smad4 controls chondrocyte hypertrophy by up-regulating Runx2 expression during skeletal development. The regulatory mechanism involving Smad4-mediated Runx2 activation uncovered here provides critical insights into bone development and pathogenesis of chondrodysplasia.