TGFβs act through canonical and non-canonical pathways, and canonical signals are transduced via Smad2 and Smad3. However, the contribution of canonical vs. non-canonical pathways in cartilage is unknown because the role of Smad2 in chondrogenesis has not been investigated in vivo. Therefore, we analyzed mice in which Smad2 is deleted in cartilage (Smad2CKO), global Smad3-/- mutants, and crosses of these strains. Growth plates at birth from all mutant strains exhibited expanded columnar and hypertrophic zones, linked to increased proliferation in resting chondrocytes. Defects were more severe in Smad2CKO and Smad2CKO;Smad3-/- (Smad2/3) mutant mice than in Smad3-/- mice, demonstrating that Smad2 plays a role in chondrogenesis. Increased levels of Ihh RNA, a key regulator of chondrocyte proliferation and differentiation, were seen in prehypertrophic chondrocytes in the three mutant strains at birth. In accordance, TGFβ treatment decreased Ihh RNA levels in primary chondrocytes from control (Smad2fx/fx) mice, but inhibition was impaired in cells from mutants. Consistent with the skeletal phenotype, the impact on TGFβ-mediated inhibition of Ihh RNA expression was more severe in Smad2CKO than in Smad3-/- cells. Putative Smad2/3 binding elements (SBEs) were identified in the proximal Ihh promoter. Mutagenesis demonstrated a role for three of them. ChIP analysis suggested that Smad2 and Smad3 have different affinities for these SBEs, and that the repressors SnoN and Ski were differentially recruited by Smad2 and Smad3, respectively. Furthermore, nuclear localization of the repressor Hdac4 was decreased in growth plates of Smad2CKO and double mutant mice. TGFβ induced association of Hdac4 with Smad2, but not with Smad3, on the Ihh promoter. Overall, these studies revealed that Smad2 plays an essential role in the development of the growth plate, that both Smads 2 and 3 inhibit Ihh expression in the neonatal growth plate, and suggested they accomplish this by binding to distinct SBEs, mediating assembly of distinct repressive complexes.