An exostosis or osteochondroma is an aberrant bony growth occurring next to the growth plate either as an isolated growth abnormality or as part of the Hereditary Multiple Exostosis (HME) syndrome. Mutations in either exostosin 1 (EXT1) or exostosin 2 (EXT2) gene cause the HME syndrome and also some isolated osteochondromas. The EXT1 and EXT2 genes are glycosyltransferases that function as hetero-oligomers in the Golgi to add repeating glycosaminoglycans (GAGs) to heparan sulfate (HS) chains. Previously, we demonstrated that HS is markedly diminished in the exostosis cartilage cap and that the HS proteoglycan, perlecan, has an abnormal distribution in these caps. The present studies were undertaken to evaluate which chondrocyte-specific functions are associated with diminished HS synthesis in human chondrocytes harboring either EXT1 or EXT2 mutations. Systematic evaluation of exostosis cartilage caps and chondrocytes, both in vitro and in vivo, suggests that chondrocyte-specific cell functions account for diminished HS levels. In addition, we provide evidence that perichondrial cells give rise to chondrocytes that clonally expand and develop into an exostosis. Undifferentiated EXT chondrocytes synthesized amounts of HS similar to control chondrocytes; however, EXT chondrocytes displayed very poor survival in vitro under conditions that promote normal chondrocyte differentiation with high efficiency. Collectively, these observations suggest that loss of one copy of either the EXT1 or EXT2 gene product compromises the perichondrial chondrocytes' ability to differentiate normally and to survive in a differentiated state in vitro. In vivo, these compromised responses may lead to abnormal chondrocyte growth, perhaps from a perichondrial stem cell reserve.