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Indian hedgehog (Ihh) and Parathyroid Hormone-related Protein (PTHrP) play a critical role in the morphogenesis of the vertebrate skeleton. Targeted deletion of Ihh results in short-limbed dwarfism, with decreased chondrocyte proliferation and extensive hypertrophy, features shared by mutants in PTHrP and its receptor. Activation of Ihh signaling upregulates PTHrP at the articular surface and prevents chondrocyte hypertrophy in wild-type but not PTHrP null explants, suggesting that Ihh acts through PTHrP. To investigate the relationship between these factors during development of the appendicular skeleton, mice were produced with various combinations of an Ihh null mutation (Ihh(-/-)), a PTHrP null mutation (PTHrP(-/-)), and a constitutively active PTHrP/Parathyroid hormone Receptor expressed under the control of the Collagen II promoter (PTHrPR*). PTHrPR* rescues PTHrP(-/-) embryos, demonstrating this construct can completely compensate for PTHrP signalling. At 18.5 dpc, limb skeletons of Ihh, PTHrP compound mutants were identical to Ihh single mutants suggesting Ihh is necessary for PTHrP function. Expression of PTHrPR* in chondrocytes of Ihh(-/-) mice prevented premature chondrocyte hypertrophy but did not rescue either the short-limbed dwarfism or decreased chondrocyte proliferation. These experiments demonstrate that the molecular mechanism that prevents chondrocyte hypertrophy is distinct from that which drives proliferation. Ihh positively regulates PTHrP, which is sufficient to prevent chondrocyte hypertrophy and maintain a normal domain of cells competent to undergo proliferation. In contrast, Ihh is necessary for normal chondrocyte proliferation in a pathway that can not be rescued by PTHrP signaling. This identifies Ihh as a coordinator of skeletal growth and morphogenesis, and refines the role of PTHrP in mediating a subset of Ihh's actions.