Chondrocyte hypertrophy is a mandatory step during endochondral ossification. Cbfa1-deficient mice lack hypertrophic chondrocytes in some skeletal elements, indicating that Cbfa1 may control hypertrophic chondrocyte differentiation. To address this question we generated transgenic mice expressing Cbfa1 in nonhypertrophic chondrocytes (alpha1(II) Cbfa1). This continuous expression of Cbfa1 in nonhypertrophic chondrocytes induced chondrocyte hypertrophy and endochondral ossification in locations where it normally never occurs. To determine if this was caused by transdifferentiation of chondrocytes into osteoblasts or by a specific hypertrophic chondrocyte differentiation ability of Cbfa1, we used the alpha1(II) Cbfa1 transgene to restore Cbfa1 expression in mesenchymal condensations of the Cbfa1-deficient mice. The transgene restored chondrocyte hypertrophy and vascular invasion in the bones of the mutant mice but did not induce osteoblast differentiation. This rescue occurred cell-autonomously, as skeletal elements not expressing the transgene were not affected. Despite the absence of osteoblasts in the rescued animals there were multinucleated, TRAP-positive cells resorbing the hypertrophic cartilage matrix. These results identify Cbfa1 as a hypertrophic chondrocyte differentiation factor and provide a genetic argument for a common regulation of osteoblast and chondrocyte differentiation mediated by Cbfa1.