During craniofacial development, Meckel's cartilage and the mandible bone derive from the first branchial arch, and their development depends upon the contribution of cranial neural crest (CNC) cells. We previously demonstrated that conditional inactivation of Tgfbr2 in the neural crest of mice (Tgfbr2(fl/fl);Wnt1-Cre) results in severe defects in mandibular development, although the specific cellular and molecular mechanisms by which TGF-beta signaling regulates the fate of CNC cells during mandibular development remain unknown. We show here that loss of Tgfbr2 does not affect the migration of CNC cells during mandibular development. TGF-beta signaling is specifically required for cell proliferation in Meckel's cartilage and the mandibular anlagen and for the formation of the coronoid, condyle and angular processes. TGF-beta-mediated connective tissue growth factor (CTGF) signaling is critical for CNC cell proliferation. Exogenous CTGF rescues the cell proliferation defect in Meckel's cartilage of Tgfbr2(fl/fl);Wnt1-Cre mutants, demonstrating the biological significance of this signaling cascade in chondrogenesis during mandibular development. Furthermore, TGF-beta signaling controls Msx1 expression to regulate mandibular osteogenesis as Msx1 expression is significantly reduced in Tgfbr2(fl/fl);Wnt1-Cre mutants. Collectively, our data suggest that there are differential signal cascades in response to TGF-beta to control chondrogenesis and osteogenesis during mandibular development.