During enchondral ossification, mesenchymal cells express genes regulating the intracellular biosynthesis of cholesterol and lipids. Here we investigated conditional deletion of Scap or Insig1 and Insig2 (inhibits or activates intracellular biosynthesis respectively). Mesenchymal condensation and chondrogenesis was disrupted in mice lacking Scap in mesenchymal progenitors, while mice lacking the Insig genes in mesenchymal progenitors had short limbs, but normal chondrogenesis. Mice lacking Scap in chondrocytes showed severe dwarfism, with ectopic hypertrophic cells, while deletion of Insig genes in chondrocytes caused a mild dwarfism and shorting of the hypertrophic zone. In-vitro studies showed that intracellular cholesterol in chondrocytes can derive from exogenous and endogenous sources, but that exogenous sources cannot completely overcome the phenotypic effect of Scap deficiency. Genes encoding cholesterol biosynthetic proteins are regulated by Hedgehog (Hh) signaling, and Hh signaling is also regulated by intracellular cholesterol in chondrocytes, suggesting a feedback loop in chondrocyte differentiation. Precise regulation of intracellular biosynthesis is required for chondrocyte homeostasis and long bone growth, and this data supports pharmacologic modulation of cholesterol biosynthesis as a therapy for select cartilage pathologies.