Mutations in the gene encoding matrilin-3 (MATN3), a noncollagenous extracellular matrix protein, have been reported in a variety of skeletal diseases, including multiple epiphyseal dysplasia, which is characterized by irregular ossification of the epiphyses and early-onset osteoarthritis, spondylo-epimetaphyseal dysplasia, and idiopathic hand osteoarthritis. To assess the role of matrilin-3 in the pathogenesis of these diseases, we generated Matn3 functional knockout mice using embryonic stem cell technology. In the embryonic growth plate of the developing long bones, Matn3 null chondrocytes prematurely became prehypertrophic and hypertrophic, forming an expanded zone of hypertrophy. This expansion was attenuated during the perinatal period, and Matn3 homozygous null mice were viable and showed no gross skeletal malformations at birth. However, by 18 weeks of age, Matn3 null mice had a significantly higher total body bone mineral density than Matn1 null mice or wild-type littermates. Aged Matn3 null mice were much more predisposed to develop severe osteoarthritis than their wild-type littermates. Here, we show that matrilin-3 plays a role in modulating chondrocyte differentiation during embryonic development, in controlling bone mineral density in adulthood, and in preventing osteoarthritis during aging. The lack of Matn3 does not lead to postnatal chondrodysplasia but accounts for higher incidence of osteoarthritis.