Chondrogenesis is a multistep process that is essential for endochondral bone formation. Previous results have indicated a role for beta-catenin and Wnt signaling in this pathway. Here we show the existence of physical and functional interactions between beta-catenin and Sox9, a transcription factor that is required in successive steps of chondrogenesis. In vivo, either overexpression of Sox9 or inactivation of beta-catenin in chondrocytes of mouse embryos produces a similar phenotype of dwarfism with decreased chondrocyte proliferation, delayed hypertrophic chondrocyte differentiation, and endochondral bone formation. Furthermore, either inactivation of Sox9 or stabilization of beta-catenin in chondrocytes also produces a similar phenotype of severe chondrodysplasia. Sox9 markedly inhibits activation of beta-catenin-dependent promoters and stimulates degradation of beta-catenin by the ubiquitination/proteasome pathway. Likewise, Sox9 inhibits beta-catenin-mediated secondary axis induction in Xenopus embryos. Beta-catenin physically interacts through its Armadillo repeats with the C-terminal transactivation domain of Sox9. We hypothesize that the inhibitory activity of Sox9 is caused by its ability to compete with Tcf/Lef for binding to beta-catenin, followed by degradation of beta-catenin. Our results strongly suggest that chondrogenesis is controlled by interactions between Sox9 and the Wnt/beta-catenin signaling pathway.