The proliferative rate of chondrocytes affects bone elongation. Chondrocyte hypertrophy is required for endochondral bone formation as chondrocytes secrete factors required for osteoblast differentiation and maturation. Previous studies have demonstrated that the Indian hedgehog (Ihh) signaling pathway is a key regulator of skeletal development and homeostasis. The aim of the present study was to investigate the function of Ihh in chondrocyte proliferation and differentiation, as well as the underlying mechanisms. Ihh was knocked down in mouse chondrocyte cells using short hairpin RNA. Chondrocyte apoptosis and cell cycle arrest were assessed using flow cytometry and the results indicated that knockdown of Ihh significantly inhibited cell growth (P<0.05) and increased apoptosis (P<0.001) compared with negative control cells. Downregulation of Ihh also resulted in cell cycle arrest at G1 to S phase in chondrocytes. It was also observed that knockdown of Ihh decreased alkaline phosphatase activity and mineral deposition of chondrocytes. The inhibitory roles of Ihh downregulation on chondrocyte growth and differentiation may be associated with the transforming growth factor-β/mothers against decapentaplegic and osteoprotegerin/receptor activator of nuclear factor κB ligand signaling pathway. The results of the present study suggest that chondrocyte-derived Ihh is essential for maintaining bone growth plates and that manipulation of Ihh expression or its signaling components may be a novel therapeutic technique for the treatment of skeletal diseases, including achondroplasia.