Endochondral bone formation is fundamental for skeletal development. During this process, chondrocytes undergo multiple steps of differentiation and coordinated transition from a proliferating to a hypertrophic stage, which is critical to advance skeletal development. Here, we identified the transcription factor Dmrt2 (double-sex and mab-3 related transcription factor 2) as a Sox9-inducible gene that promotes chondrocyte hypertrophy in pre-hypertrophic chondrocytes. Epigenetic analysis further demonstrated that Sox9 regulates Dmrt2 expression through an active enhancer located 18 kb upstream of the Dmrt2 gene and that this enhancer's chromatin status is progressively activated through chondrocyte differentiation. Dmrt2-knockout mice exhibited a dwarf phenotype with delayed initiation of chondrocyte hypertrophy. Dmrt2 augmented hypertrophic chondrocyte gene expression including Ihh through physical and functional interaction with Runx2. Furthermore, Dmrt2 deficiency reduced Runx2-dependent Ihh expression. Our findings suggest that Dmrt2 is critical for sequential chondrocyte differentiation during endochondral bone formation and coordinates the transcriptional network between Sox9 and Runx2.