Missense mutations of human fibroblast growth factor receptor 3 (FGFR3) result in several skeletal dysplasias, including hypochondroplasia, achondroplasia and thanatophoric dysplasia. To study the function of FGFR3 in bone growth and to create animal models for the FGFR3-related inherited skeletal disorders, we introduced a point mutation (Lys644Glu) into the murine FGFR3 genome using a knock-in approach. We found that the Lys644Glu mutation resulted in retarded endochondral bone growth with severity directly linked to the expression level of the mutated Fgfr3. Mice heterozygous for the mutation ( Fgfr3(TD/+) ) expressed the mutant allele at approximately 20% of the wild-type level and exhibited a mild bone dysplasia. However, when the copy number of the mutant allele increased from one (Fgfr3(TD/+) to two (Fgfr3(TD/TD), the retardation of bone growth became more severe and showed phenotypes resembling those of achondroplasia patients, characterized by a dramatically reduced proliferation of growth plate cartilage, macrocephaly and shortening of the long bones, which was most pronounced in the femur. Molecular analysis revealed that expression of the mutant receptor caused the activation of Stat1, Stat5a and Stat5b, and the up-regulation of p16, p18 and p19 cell cycle inhibitors, leading to dramatic expansion of the resting zone of chondrocytes at the expense of the proliferating chondrocytes. The mutant growth plates consequently were in a less active state and generated fewer maturing and hypertrophic chondrocytes. These data provide direct genetic evidence that the point mutations in FGFR3 cause human skeletal dysplasias and uncover a mechanism through which the FGFR3 signals regulate bone growth by modulating expression of Stats and ink4 cell cycle inhibitors.