The Hedgehog (Hh) pathway plays an indispensable role in bone development and genetic activation of the pathway results in medulloblastoma (MB), the most common malignant brain tumor in children. Inhibitors of Hh pathway (such as vismodegib and sonedigib), which are used to treat MB, cause irreversible defects in bone growth in young children. Cholesterol is required for the activation of the Hh pathway, and statins, inhibitors of cholesterol biosynthesis, suppress MB growth by repressing Hh signaling in tumor cells. Here, we investigate the role of cholesterol biosynthesis in the proliferation and Hh signaling in chondrocytes, and examine the bone development in mice after statin treatment. Statins significantly inhibited MB growth in young mice, but caused no defects in bone development. Conditional deletion of NADP steroid dehydrogenase-like (NSDHL), an enzyme necessary for cholesterol biosynthesis, suppressed cholesterol synthesis in chondrocytes, and disrupted the growth plate in mouse femur and tibia, indicating the important function of intracellular cholesterol in bone development. Hh pathway activation and the proliferation of chondrocytes were inhibited by statin treatment in vitro; however, statins did not impair bone growth in vivo due to insufficient penetration into the bone. Our studies reveal a critical role of cholesterol in bone development, and support the utilization of statins for treatment of MB as well as other Hh pathway-associated malignancies.