Cell cycle regulation is critical for chondrocyte differentiation and hypertrophy. Recently we identified the Notch signaling pathway as an important regulator of chondrocyte proliferation and differentiation during mouse cartilage development. To investigate the underlying mechanisms, we assessed the role for Notch signaling regulation of the cell cycle during chondrocyte differentiation. Real-time RT-PCR data showed that over-expression of the Notch Intracellular Domain (NICD) significantly induced the expression of p57, a cell cycle inhibitor, in chondrocytes. Flow cytometric analyses further confirmed that over-expression of NICD in chondrocytes enhances the G0/G1 cell cycle transition and cell cycle arrest. In contrast, treatment of chondrocytes with the Notch inhibitor, DAPT, decreased both endogenous and BMP2-induced SMAD 1/5/8 phosphorylation and knockdown of SMAD 1/5/8 impaired NICD-induced chondrocyte differentiation and p57 expression. Co-immunoprecipitation using p-SMAD 1/5/8 and NICD antibodies further showed a strong interaction of these proteins during chondrocyte maturation. Finally, RT-PCR and Western blot results revealed a significant reduction in the expression of the SMAD-related phosphatase, PPM1A, following NICD over-expression. Taken together, our results demonstrate that Notch signaling induces cell cycle arrest and thereby initiates chondrocyte hypertrophy via BMP/SMAD-mediated up-regulation of p57.