The assembly and degradation of extracellular matrix (ECM) molecules are crucial processes during bone development. In this study, we show that ECM remodeling is a critical rate-limiting step in endochondral bone formation. Matrix metalloproteinase (MMP) 13 (collagenase 3) is poised to play a crucial role in bone formation and remodeling because of its expression both in terminal hypertrophic chondrocytes in the growth plate and in osteoblasts. Moreover, a mutation in the human MMP13 gene causes the Missouri variant of spondyloepimetaphyseal dysplasia. Inactivation of Mmp13 in mice through homologous recombination led to abnormal skeletal growth plate development. Chondrocytes differentiated normally but their exit from the growth plate was delayed. The severity of the Mmp13- null growth plate phenotype increased until about 5 weeks and completely resolved by 12 weeks of age. Mmp13-null mice had increased trabecular bone, which persisted for months. Conditional inactivation of Mmp13 in chondrocytes and osteoblasts showed that increases in trabecular bone occur independently of the improper cartilage ECM degradation caused by Mmp13 deficiency in late hypertrophic chondrocytes. Our studies identified the two major components of the cartilage ECM, collagen type II and aggrecan, as in vivo substrates for MMP13. We found that degradation of cartilage collagen and aggrecan is a coordinated process in which MMP13 works synergistically with MMP9. Mice lacking both MMP13 and MMP9 had severely impaired endochondral bone, characterized by diminished ECM remodeling,prolonged chondrocyte survival, delayed vascular recruitment and defective trabecular bone formation (resulting in drastically shortened bones). These data support the hypothesis that proper ECM remodeling is the dominant rate-limiting process for programmed cell death, angiogenesis and osteoblast recruitment during normal skeletal morphogenesis.