JMJD3 (KDM6B) is an H3K27me3 demethylase and counteracts polycomb-mediated transcription repression. However, the function of JMJD3 in vivo is not well understood. Here we show that JMJD3 is highly expressed in cells of the chondrocyte lineage, especially in prehypertrophic and hypertrophic chondrocytes, during endochondral ossification. Homozygous deletion of Jmjd3 results in severely decreased proliferation and delayed hypertrophy of chondrocytes, and thereby marked retardation of endochondral ossification in mice. Genetically, JMJD3 associates with RUNX2 to promote proliferation and hypertrophy of chondrocytes. Biochemically, JMJD3 associates with and enhances RUNX2 activity by derepression of Runx2 and Ihh transcription through its H3K27me3 demethylase activity. These results demonstrate that JMJD3 is a key epigenetic regulator in the process of cartilage maturation during endochondral bone formation.