The protocadherins Fat4 and Dchs1 act as a receptor-ligand pair to regulate many developmental processes in mice and humans, including development of the vertebrae. Based on conservation of function between Drosophila and mammals, Fat4-Dchs1 signalling has been proposed to regulate planar cell polarity (PCP) and activity of the Hippo effectors Yap and Taz, which regulate cell proliferation, survival and differentiation. There is strong evidence for Fat regulation of PCP in mammals but the link with the Hippo pathway is unclear. In Fat4(-/-) and Dchs1(-/-) mice, many vertebrae are split along the midline and fused across the anterior-posterior axis, suggesting that these defects might arise due to altered cell polarity and/or changes in cell proliferation/differentiation. We show that the somite and sclerotome are specified appropriately, the transcriptional network that drives early chondrogenesis is intact, and that cell polarity within the sclerotome is unperturbed. We find that the key defect in Fat4 and Dchs1 mutant mice is decreased proliferation in the early sclerotome. This results in fewer chondrogenic cells within the developing vertebral body, which fail to condense appropriately along the midline. Analysis of Fat4;Yap and Fat4;Taz double mutants, and expression of their transcriptional target Ctgf, indicates that Fat4-Dchs1 regulates vertebral development independently of Yap and Taz. Thus, we have identified a new pathway crucial for the development of the vertebrae and our data indicate that novel mechanisms of Fat4-Dchs1 signalling have evolved to control cell proliferation within the developing vertebrae.