Fibroblast growth factor (FGF) signaling is involved in skeletal development of the vertebrate. Gain-of-function mutations of FGF receptors (FGFR) cause craniosynostosis, premature fusion of the skull, and dwarfism syndromes. Disruption of Fgfr3 results in prolonged growth of long bones and vertebrae. However, the role that FGFs actually play in skeletal development in the embryo remains unclear. Here we show that Fgf18 is expressed in and required for osteogenesis and chondrogenesis in the mouse embryo. Fgf18 is expressed in both osteogenic mesenchymal cells and differentiating osteoblasts during calvarial bone development. In addition, Fgf18 is expressed in the perichondrium and joints of developing long bones. In calvarial bone development of Fgf18-deficient mice generated by gene targeting, the progress of suture closure is delayed. Furthermore, proliferation of calvarial osteogenic mesenchymal cells is decreased, and terminal differentiation to calvarial osteoblasts is specifically delayed. Delay of osteogenic differentiation is also observed in the developing long bones of this mutant. Conversely, chondrocyte proliferation and the number of differentiated chondrocytes are increased. Therefore, FGF18 appears to regulate cell proliferation and differentiation positively in osteogenesis and negatively in chondrogenesis.