Perlecan, a large, multi-domain, heparan sulfate proteoglycan originally identified in basement membrane, interacts with extracellular matrix proteins, growth factors and receptors, and influences cellular signalling 1, 2, 3, 4, 5. Perlecan is present in a variety of basement membranes and in other extracellular matrix structures 5, 6. We have disrupted the gene encoding perlecan (Hspg2) in mice. Approximately 40% of Hspg2–/–mice died at embryonic day (E) 10.5 with defective cephalic development. The remaining Hspg2–/–mice died just after birth with skeletal dysplasia characterized by micromelia with broad and bowed long bones, narrow thorax and craniofacial abnormalities. Only 6% of Hspg2–/–mice developed both exencephaly and chondrodysplasia. Hspg2–/–cartilage showed severe disorganization of the columnar structures of chondrocytes and defective endochondral ossification. Hspg2–/–cartilage matrix contained reduced and disorganized collagen fibrils and glycosaminoglycans, suggesting that perlecan has an important role in matrix structure. In Hspg2–/–cartilage, proliferation of chondrocytes was reduced and the prehypertrophic zone was diminished. The abnormal phenotypes of the Hspg2–/–skeleton are similar to those of thanatophoric dysplasia (TD) type I, which is caused by activating mutations in FGFR3 (refs 7, 8, 9), and to those of Fgfr3 gain-of-function mice 10, 11. Our findings suggest that these molecules affect similar signalling pathways.