Angiogenesis is an essential component of skeletal development and VEGF signaling plays an important if not pivotal role in this process. Previous attempts to examine the roles of VEGF in vivo have been largely unsuccessful because deletion of even one VEGF allele leads to embryonic lethality before skeletal development is initiated. The availability of mice expressing only the VEGF120 isoform (which do survive to term) has offered an opportunity to explore the function of VEGF during embryonic skeletal development. Our study of these mice provides new in vivo evidence for multiple important roles of VEGF in both endochondral and intramembranous bone formation, as well as some insights into isoform-specific functions. There are two key differences in vascularization of developing bones between wild-type and VEGF^120/120 mice. VEGF^120/120 mice have not only a delayed recruitment of blood vessels into the perichondrium but also show delayed invasion of vessels into the primary ossification center, demonstrating a significant role of VEGF at both an early and late stage of cartilage vascularization. These findings are the basis for a two-step model of VEGF-controlled vascularization of the developing skeleton, a hypothesis that is supported by the new finding that VEGF is expressed robustly in the perichondrium and surrounding tissue of cartilage templates of future bones well before blood vessels appear in these regions. We also describe new in vivo evidence for a possible role of VEGF in chondrocyte maturation, and document that VEGF has a direct role in regulating osteoblastic activity based on in vivo evidence and organ culture experiments.