ADAMTS-7, a metalloproteinase that belongs to ADAMTS family, is important for the degradation of cartilage extracellular matrix proteins in arthritis. Herein we report that ADAMTS-7 is upregulated during chondrocyte differentiation and demonstrates the temporal and spatial expression pattern during skeletal development. ADAMTS-7 potently inhibits chondrocyte differentiation and endochondral bone formation, and this inhibition depends on its proteolytic activity. The cysteine-rich domain of ADAMTS-7 is required for its interaction with the extracellular matrix, and the C-terminal four-thrombospondin motifs are necessary for its full proteolytic activity and inhibition of chondrocyte differentiation. ADAMTS-7 is an important target of canonical PTHrP signaling, since (i) PTHrP induces ADAMTS-7, (ii) ADAMTS-7 is downregulated in PTHrP null mutant (PTHrP-/-) growth plate chondrocytes, and (iii) blockage of ADAMTS-7 almost abolishes PTHrP-mediated inhibition of chondrocyte hypertrophy and endochondral bone growth. ADAMTS-7 associates with granulin-epithelin precursor (GEP), an autocrine growth factor that has been implicated in tissue regeneration, tumorigenesis, and inflammation. In addition, ADAMTS-7 acts as a new GEP convertase and neutralizes GEP-stimulated endochondral bone formation. Collectively, these findings demonstrate that ADAMTS-7, a direct target of PTHrP signaling, negatively regulates endochondral bone formation by associating with and inactivating GEP chondrogenic growth factor.