Calpains are calcium-dependent intracellular cysteine proteases, which include ubiquitously expressed mu- and m-calpains. Both calpains are heterodimers consisting of a large catalytic subunit and a small regulatory subunit. The calpain small subunit encoded by the gene Capn4 directly binds to the intracellular C-terminal tail of the receptor for the parathyroid hormone (PTH) and PTH-related peptide and modulates cellular functions in cells of the osteoblast lineage in vitro and in vivo. To investigate a physiological role of the calpain small subunit in cells of the chondrocyte lineage, we generated chondrocyte-specific Capn4 knockout mice. Mutant embryos had reduced chondrocyte proliferation and differentiation in embryonic growth plates compared with control littermates. In vitro analysis further revealed that deletion of Capn4 in cells of the chondrocyte lineage correlated with impaired cell cycle progression at the G(1)/S transition, reduced cyclin D gene transcription, and accumulated cell cycle proteins known as calpain substrates. Moreover, silencing of p27(Kip1) rescued an impaired cell growth phenotype in Capn4 knockdown cells, and reintroducing the calpain small subunit partially normalized cell growth and accumulated cyclin D protein levels in a dose-dependent manner. Collectively, our findings suggest that the calpain small subunit is essential for proper chondrocyte functions in embryonic growth plates.