Histone modification, a critical step for epigenetic regulation, is an important modulator of biological events. Sox9 is a transcription factor critical for endochondral ossification; however, proof of its epigenetic regulation remains elusive. Here we identify AT-rich interactive domain 5b (Arid5b) as a transcriptional co-regulator of Sox9. Arid5b physically associates with Sox9 and synergistically induces chondrogenesis. Growth of Arid5b(-/-) mice is retarded with delayed endochondral ossification. Sox9-dependent chondrogenesis is attenuated in Arid5b-deficient cells. Arid5b recruits Phf2, a histone lysine demethylase, to the promoter region of Sox9 target genes and stimulates H3K9me2 demethylation of these genes. In the promoters of chondrogenic marker genes, H3K9me2 levels are increased in Arid5b(-/-) chondrocytes. Finally, we show that Phf2 knockdown inhibits Sox9-induced chondrocyte differentiation. Our findings establish an epigenomic mechanism of skeletal development, whereby Arid5b promotes chondrogenesis by facilitating Phf2-mediated histone demethylation of Sox9-regulated chondrogenic gene promoters.