GlcNAc N-deacetylase/ N-sulfotransferase-1 (NDST-1), a member of the enzyme family catalyzing the first modification step in the biosynthesis of heparan sulfate (HS), was knocked out in mice to investigate its role in embryonic development. NDST-1 null mice exhibited delayed endochondral bone formation including shortened calcified zones in limbs, delayed chondrocyte and osteogenetic differentiation, and increased chondrocyte proliferation. In situ HS binding assay revealed that the binding ability of bone morphogenetic protein (BMP) -2, -4, and -6 to endogenous HS was decreased in mutant phalanges, while that of fibroblast growth factor-1 (FGF-1) was not affected. Up-regulation of BMPR-IA, Phospho-Smad1 (P-Smad1) and parathyroid-hormone related protein (PTHrP), but not the Indian hedgehog, Gli1, Gli3, Patched, and FGFR-3, was observed. Furthermore, block of BMPR signaling with noggin rescued the delayed chondrocyte hypertrophic differentiation in NDST-1 (−/−) mice and recovered the expression of both P-Smad1 and PTHrP proteins. These results suggested that NDST-1-dependent heparan sulfate might negatively modulate BMP and its downstream PTHrP signaling, and thus affect endochondral bone development.