Mammalian Hedgehog (HH) signalling pathway plays an essential role in tissue homeostasis and its deregulation is linked to rheumatological disorders. UBR5 is the mammalian homologue of the E3 ubiquitin-protein ligase Hyd, a negative regulator of the Hh-pathway in Drosophila. To investigate a possible role of UBR5 in regulation of the musculoskeletal system through modulation of mammalian HH signaling, we created a mouse model for specific loss of Ubr5 function in limb bud mesenchyme. Our findings revealed a role for UBR5 in maintaining cartilage homeostasis and suppressing metaplasia. Ubr5 loss of function resulted in progressive and dramatic articular cartilage degradation, enlarged, abnormally shaped sesamoid bones and extensive heterotopic tissue metaplasia linked to calcification of tendons and ossification of synovium. Genetic suppression of smoothened (Smo), a key mediator of HH signalling, dramatically enhanced the Ubr5 mutant phenotype. Analysis of HH signalling in both mouse and cell model systems revealed that loss of Ubr5 stimulated canonical HH-signalling while also increasing PKA activity. In addition, human osteoarthritic samples revealed similar correlations between UBR5 expression, canonical HH signalling and PKA activity markers. Our studies identified a crucial function for the Ubr5 gene in the maintenance of skeletal tissue homeostasis and an unexpected mode of regulation of the HH signalling pathway.