HTRA1 is a member of the High Temperature Requirement (HTRA1) family of serine proteases, which play a role in several biological and pathological processes. In part, HTRA1 regulation occurs by inhibiting the TGF-β signaling pathway, however the mechanism of inhibition has not been fully defined. Previous studies have shown that HTRA1 is expressed in a variety of tissues, including sites of skeletal development. HTRA1 has also been implicated in the process of bone formation, although the precise manner of regulation is still unknown. This study investigated how HTRA1 regulates TGF-β signaling and examined the in vivo effects of the loss of HTRA1. We demonstrated that recombinant HTRA1 was capable of cleaving both type II and type III TGF-β receptors (TβRII and TβRIII) in vitro in a dose-dependent manner, but it did not affect the integrity of TβRI or TGF-β. Overexpression of HTRA1 led to decreased levels of both TβRII and III on the cell surface but had no effect on TβRI. Silencing HTRA1 expression significantly increased TGF-β binding to the cell surface and TGF-β responsiveness within the cell. To examine the role of HTRA1 in vivo, we generated mice with a targeted gene deletion of HTRA1. Embryonic fibroblasts isolated from these mice displayed an increase in TGF-β-induced expression of several genes known to promote bone formation. Importantly, the loss of HTRA1 in the knockout mice resulted in a marked increase in trabecular bone mass. This study has identified a novel regulatory mechanism by which HTRA1 antagonizes TGF-β signaling, and has shown that HTRA1 plays a key role in the regulation of bone formation.