Small GTPases of the Rho family have been implicated in the regulation of many intracellular processes. However, their tissue-specific roles in mammalian growth and development in vivo remain largely unknown. Here we describe the effects of cartilage-specific inactivation of the Rac1 gene in mice. Mice carrying this mutation show increased lethality, skeletal deformities, severe kyphosis and dwarfism. Rac1-deficient growth plates are disorganized and hypocellular, with chondrocytes of abnormal shape and size. Rac1-deficient chondrocytes also display reduced adhesion and spreading on collagen II and fibronectin as well as altered organization of the actin cytoskeleton, suggesting that Rac1 is required for normal cell-extracellular matrix interactions in cartilage. This phenotype is accompanied by reduced proliferation, increased apoptosis and deregulated expression of the cell cycle genes cyclin D1 and p57 in vivo. Moreover, phosphorylation of p38 MAP kinases is greatly reduced and expression of a key regulator of cartilage development, Indian hedgehog, is increased in mutant mice. In summary, these data identify a novel, essential and tissue-specific role of Rac1 in skeletal development and demonstrate that Rac1 deficiency affects numerous regulatory pathways in cartilage.