Gain of function mutations in fibroblast growth factor (FGF) receptors cause chondrodysplasia and craniosynostosis syndromes. The ligands interacting with FGF receptors (FGFRs) in developing bone have remained elusive, and the mechanisms by which FGF signaling regulates endochondral, periosteal, and intramembranous bone growth are not known. Here we show that Fgf18 is expressed in the perichondrium and that mice homozygous for a targeted disruption of Fgf18 exhibit a growth plate phenotype similar to that observed in mice lacking Fgfr3 and an ossification defect at sites that express Fgfr2. Mice lacking either Fgf18 or Fgfr3 exhibited expanded zones of proliferating and hypertrophic chondrocytes and increased chondrocyte proliferation, differentiation, and Indian hedgehog signaling. These data suggest that FGF18 acts as a physiological ligand for FGFR3. In addition, mice lacking Fgf18 display delayed ossification and decreased expression of osteogenic markers, phenotypes not seen in mice lacking Fgfr3. These data demonstrate that FGF18 signals through another FGFR to regulate osteoblast growth. Signaling to multiple FGFRs positions FGF18 to coordinate chondrogenesis in the growth plate with osteogenesis in cortical and trabecular bone.