Mutations in fibroblast growth factor (FGF) receptor 3 lead to the human dwarfism syndrome achondroplasia. Using a limb culture system, we have analyzed the role of FGF signaling and its interaction with the Ihh/Pthlh and BMP pathways in regulating chondrocyte differentiation. In contrast to previous suggestions, we demonstrate that FGF signaling accelerates both the onset and the pace of hypertrophic differentiation. We furthermore found that FGF and BMP signaling act in an antagonistic relationship regulating chondrocyte proliferation, Ihh expression, and the process of hypertrophic differentiation. Importantly, BMP signaling rescues the reduced domains of proliferating and hypertrophic chondrocytes in a mouse model for achondroplasia. We propose a model in which the balance of BMP and FGF signaling adjusts the pace of the differentiation process to the proliferation rate.