Tuberoinfundibular peptide of 39 residues (TIP39) is a member of the parathyroid hormone (PTH) family of peptide hormones that exerts its function by interacting with the PTH type 2 receptor (PTH2R). Presently, no known function has been attributed to this signaling pathway in the developing skeleton. We observed that TIP39 and PTH2R were present in the newborn mouse growth plate, with the receptor localizing in the resting zone whereas ligand expression was restricted exclusively in prehypertrophic and hypertrophic chondrocytes. By 8 wk of life, PTH2R, and to a lesser degree TIP39, immunoreactivity was present in articular chondrocytes. We therefore sought to investigate the role of TIP39/PTH2R signaling in chondrocytes by generating stably transfected CFK2 chondrocytic cells overexpressing PTH2R (CFK2R). TIP39 treatment of CFK2R clones in culture inhibited their proliferation by restricting cells at the G(0)/G(1) phase of the cell cycle, coupled with decreased expression and activity of cyclin-dependent kinases Cdk2 and Cdk4, while p21, an inhibitor of Cdks, was upregulated. In addition, TIP39 treatment decreased expression of differentiation markers in these cells associated with marked alterations in extracellular matrix and metalloproteinase expression. Transcription of Sox9, the master regulator of cartilage differentiation, was reduced in TIP39-treated CFK2R clones. Moreover, Sox9 promoter activity, as measured by luciferase reporter assay, was markedly diminished after TIP39 treatment. In summary, our results show that TIP39/PTH2R signaling inhibits proliferation and alters differentiation of chondrocytes by modulating SOX9 expression, thereby substantiating the functional significance of this signaling pathway in chondrocyte biology.