The mammalian Nell1 gene encodes a protein kinase C-β1 (PKC-β1) binding protein that belongs to a new class of cell-signaling molecules controlling cell growth and differentiation. Over-expression of Nell1 in the developing cranial sutures in both human and mouse induces craniosynostosis, the premature fusion of the growing cranial bone fronts. Here, we report the generation, positional cloning and characterization of Nell16R, a recessive, neonatal–lethal point mutation in the mouse Nell1 gene, induced by N-ethyl-N-nitrosourea. Nell16R has a T→A base change that converts a codon for cysteine into a premature stop codon [Cys(502)Ter], resulting in severe truncation of the predicted protein product and marked reduction in steady-state levels of the transcript. In addition to the expected alteration of cranial morphology, Nell16R mutants manifest skeletal defects in the vertebral column and ribcage, revealing a hitherto undefined role for Nell1 in signal transduction in endochondral ossification. Real-time quantitative reverse transcription-PCR assays of 219 genes showed an association between the loss of Nell1 function and reduced expression of genes for extracellular matrix (ECM) proteins critical for chondrogenesis and osteogenesis. Several affected genes are involved in the human cartilage disorder Ehlers-Danlos Syndrome and other disorders associated with spinal curvature anomalies. Nell16R mutant mice are a new tool for elucidating basic mechanisms in osteoblast and chrondrocyte differentiation in the developing skull and vertebral column and understanding how perturbations in the production of ECM proteins can lead to anomalies in these structures.