Although IGF-I has been identified as an important growth factor for the skeleton, the role of IGF-I on embryonic bone development remains unknown. Here we show that, in IGF-I-deficient (IGF-I(-/-)) mice, skeletal malformations, including short-limbed dwarfism, were evident at days post coitus (dpc) 14.5 to 18.5, accompanied by delays of mineralization in the spinal column, sternum, and fore paws. Reduced chondrocyte proliferation and increased chondrocyte apoptosis were identified in both the spinal ossification center and the growth plate of long bones. Abnormal chondrocyte differentiation and delayed initiation of mineralization was characterized by small size and fewer numbers of type X collagen expressing hypertrophic chondrocytes and lower osteocalcin expression. The Indian hedgehog-PTHrP feedback loop was altered; expression of Indian hedgehog was reduced in IGF-I(-/-) mice in long bones and in the spine, whereas expression of PTHrP was increased. Our results indicate that IGF-I plays an important role in skeletal development by promoting chondrocyte proliferation and maturation while inhibiting apoptosis to form bones of appropriate size and strength.