Discoidin domain receptor 2 (DDR2) belongs to receptor tyrosine kinase (RTK) family and is activated by collagen binding. Although the bone defects in Ddr2 null mice have been reported for a decade, the molecular mechanism remains unclear. This study sought to investigate the function and detailed mechanism of DDR2 in osteogenic and chondrogenic differentiation. Herein we found that in preosteoblastic cells, DDR2 activation was enhanced by osteogenic induction but was not paralleled with the alteration of DDR2 expression. Under differentiated condition, downregulation of endogenous DDR2 through specific shRNA dramatically repressed osteoblastic marker gene expression and osteogenic differentiation. Enforced expression of constitutively activated DDR2 increased the expression of bone markers in both undifferentiated and differentiated osteoblasts. Importantly, molecular evidence showed that DDR2 regulated the transactivity of Runx2, a master transcription factor involved in skeletal development, by modulating its phosphorylation. Analysis of candidate protein kinases indicated that extracellular signal–regulated kinase (ERK) activation is responsive to DDR2 signaling and involved in DDR2 regulation of Runx2 phosphorylation and transcriptional activity. Notably, a gain‐of‐function mutant of Runx2 with enhanced ERK‐independent phosphorylation rescued the impaired osteogenic phenotypes observed in Ddr2‐silenced cells, whereas a Runx2 mutant devoid of phosphorylation regulation by ERK inhibited DDR2 induction of osteogenesis. In addition, DDR2 facilitated Runx2 transactivation and type X collagen expression in hypertrophic chondrocytes. Thus this study reveals for the first time that DDR2 plays an essential role in osteoblast and chondrocyte differentiation. The mechanism disclosure may provide therapeutic targets for human genetic disorders caused by DDR2 deficiency. © 2011 American Society for Bone and Mineral Research.