Site-1 protease (S1P) has an essential function in the conversion of latent, membrane-bound transcription factors to their free, active form. In mammals, abundant expression of S1P in chondrocytes suggests an involvement in chondrocyte function. To determine the requirement of S1P in cartilage and bone development, we have created cartilage-specific S1P knockout mice (S1P(cko)). S1P(cko) mice exhibit chondrodysplasia and a complete lack of endochondral ossification even though Runx2 expression, Indian hedgehog signaling, and osteoblastogenesis is intact. However, there is a substantial increase in chondrocyte apoptosis in the cartilage of S1P(cko) mice. Extraction of type II collagen is substantially lower from S1P(cko) cartilage. In S1P(cko) mice, the collagen network is disorganized and collagen becomes entrapped in chondrocytes. Ultrastructural analysis reveals that the endoplasmic reticulum (ER) in S1P(cko) chondrocytes is engorged and fragmented in a manner characteristic of severe ER stress. These data suggest that S1P activity is necessary for a specialized ER stress response required by chondrocytes for the genesis of normal cartilage and thus endochondral ossification.