Unregulated FGF receptor signaling results in bone malformations that affect both endochondral and intramembranous ossification, and is the basis for several genetic forms of human dwarfism. FGF signaling inhibits chondrocyte proliferation and we have previously shown that the transcription factor STAT1 mediates the growth inhibitory effect of FGF in vitro. We provide genetic evidence that STAT1 is a modulator of the negative regulation of bone growth by FGF in vivo. We crossed Stat1^−/− mice with a transgenic mouse line overexpressing human FGF2 (TgFGF). TgFGF mice exhibit phenotypes characterized by chondrodysplasia and macrocephaly, which affect endochondral and intramembranous ossification. We found that the chondrodysplasic phenotype of these mice results both from reduced proliferation and increased apoptosis of growth plate chondrocytes. Loss of STAT1 function in TgFGF mice led to a significant correction of the chondrodysplasic phenotype, but did not affect the skull malformations. The reduced proliferation of TgFGF growth plate chondrocytes, as well as their excessive apoptosis, were restored to near-normal levels in the absence of STAT1 function. Unregulated FGF signaling in TgFGF mice also induced apoptosis in calvarial osteoblasts that was not, however, corrected by the absence of STAT1. Detailed analysis of Stat1^−/− growth plates uncovered a transient phenotype, characterized by an expansion of the proliferative zone and by acceleration of longitudinal bone growth, that attenuated as the animals grew older. These results document an essential role for STAT1 in FGF-mediated regulation of cell growth that is specific to the epiphyseal growth plate.