Growth and differentiation factor 5 (GDF5) has been implicated in chondrogenesis and joint formation, and an association of GDF5 and osteoarthritis (OA) has been reported recently. However, the in vivo function of GDF5 remains mostly unclarified. Although various human GDF5 mutations and their phenotypic consequences have been described, only loss-of-function mutations that cause brachypodism (shortening and joint ankylosis of the digits) have been reported in mice. Here, we report a new Gdf5 allele derived from a large-scale N-ethyl-N-nitrosourea mutagenesis screen. This allele carries an amino acid substitution (W408R) in a highly conserved region of the active signaling domain of the GDF5 protein. The mutation is semi-dominant, showing brachypodism and ankylosis in heterozygotes and much more severe brachypodism, ankylosis of the knee joint and malformation with early-onset OA of the elbow joint in homozygotes. The mutant GDF5 protein is secreted and dimerizes normally, but inhibits the function of the wild-type GDF5 protein in a dominant-negative fashion. This study further highlights a critical role of GDF5 in joint formation and the development of OA, and this mouse should serve as a good model for OA.