Neutral sphingomyelinase SMPD3 (nSMase2), a sphingomyelin phosphodiesterase, resides in the Golgi apparatus and is ubiquitously expressed. Gene ablation of smpd3 causes a generalized prolongation of the cell cycle that leads to late embryonic and juvenile hypoplasia because of the SMPD3 deficiency in hypothalamic neurosecretory neurons. We show here that this novel form of combined pituitary hormone deficiency is characterized by the perturbation of the hypothalamus-pituitary growth axis, associated with retarded chondrocyte development and enchondral ossification in the epiphyseal growth plate. To study the contribution by combined pituitary hormone deficiency and by the local SMPD3 deficiency in the epiphyseal growth plate to the skeletal phenotype, we introduced the full-length smpd3 cDNA transgene under the control of the chondrocyte-specific promoter Col2a1. A complete rescue of the smpd3(-/-) mouse from severe short-limbed skeletal dysplasia was achieved. The smpd3(-/-) mouse shares its dwarf and chondrodysplasia phenotype with the most common form of human achondrodysplasia, linked to the fibroblast-growth-factor receptor 3 locus, not linked to deficits in the hypothalamic-pituitary epiphyseal growth plate axis. The rescue of smpd3 in vivo has implications for future research into dwarfism and, particularly, growth and development of the skeletal system and for current screening and future treatment of combined dwarfism and chondrodysplasia.