Transforming growth factor (TGF)-β signaling plays critical roles during skeletal development and its excessive signaling causes genetic diseases of connective tissues including Marfan syndrome and acromelic dysplasia. However, the mechanisms underlying prevention of excessive TGF-β signaling in skeletogenesis remain unclear. We previously reported that Dullard/Ctdnep1 encoding a small phosphatase is required for nephron maintenance after birth through suppression of bone morphogenetic protein (BMP) signaling. Unexpectedly, we found that Dullard is involved in suppression of TGF-β signaling during endochondral ossification. Conditional Dullard-deficient mice in the limb and sternum mesenchyme by Prx1-Cre displayed the impaired growth and ossification of skeletal elements leading to postnatal lethality. Dullard was expressed in early cartilage condensations and later in growth plate chondrocytes. The tibia growth plate of newborn Dullard mutant mice showed reduction of the proliferative and hypertrophic chondrocyte layers. The sternum showed deformity of cartilage primordia and delayed hypertrophy. Micromass culture experiments revealed that Dullard deficiency enhanced early cartilage condensation and differentiation, but suppressed mineralized hypertrophic chondrocyte differentiation, which was reversed by treatment with TGF-β type I receptor kinase blocker LY-364947. Dullard deficiency induced upregulation of protein levels of both phospho-Smad2/3 and total Smad2/3 in micromass cultures without increase of Smad2/3 mRNA levels, suggesting that Dullard may affect Smad2/3 protein stability. The phospho-Smad2/3 level was also upregulated in perichondrium and hypertrophic chondrocytes in Dullard-deficient embryos. Response to TGF-β signaling was enhanced in Dullard-deficient primary chondrocyte cultures at late, but not early, time point. Moreover, perinatal administration of LY-364947 ameliorated the sternum deformity in vivo. Thus, we identified Dullard as a new negative regulator of TGF-β signaling in endochondral ossification.