Members of the basic helix-loop-helix (bHLH) family of transcription factors regulate the specification and differentiation of numerous cell types during embryonic development. Hand1 and Hand2 are expressed by a subset of neural crest cells in the anterior branchial arches and are involved in craniofacial development. However, the precise mechanisms by which Hand proteins mediate biological actions and regulate downstream target genes in branchial arches is largely unknown. Here, we report that Hand2 negatively regulates intramembranous ossification of the mandible by directly inhibiting the transcription factor Runx2, a master regulator of osteoblast differentiation. Hand proteins physically interact with Runx2, suppressing its DNA binding and transcriptional activity. This interaction is mediated by the N-terminal domain of the Hand protein and requires neither dimerization with other bHLH proteins nor DNA binding. We observed partial colocalization of Hand2 and Runx2 in the mandibular primordium of the branchial arch, and downregulation of Hand2 precedes Runx2-driven osteoblast differentiation. Hand2 hypomorphic mutant mice display insufficient mineralization and ectopic bone formation in the mandible due to accelerated osteoblast differentiation, which is associated with the upregulation and ectopic expression of Runx2 in the mandibular arch. Here, we show that Hand2 acts as a novel inhibitor of the Runx2-DNA interaction and thereby regulates osteoblast differentiation in branchial arch development.