Versican/PG-M is a large chondroitin sulfate proteoglycan in the extracellular matrix, which is transiently expressed in mesenchymal condensation areas during tissue morphogenesis. Here, we generated versican conditional knock-out mice Prx1-Cre/Vcan(flox/flox), in which Vcan is pruned out by site-specific Cre recombinase driven by the Prx1 promoter. Although Prx1-Cre/Vcan(flox/flox) mice are viable and fertile, they develop distorted digits. Histological analysis of newborn mice reveals hypertrophic chondrocytic nodules in cartilage, tilting of the joint, and a slight delay of chondrocyte differentiation in digits. By immunostaining, whereas the joint interzone of Prx1-Cre/Vcan(+/+) shows an accumulation of TGF-beta, concomitant with versican, that of Prx1-Cre/Vcan(flox/flox) without versican expression exhibits a decreased incorporation of TGF-beta. In a micromass culture system of mesenchymal cells from limb bud, whereas TGF-beta and versican are co-localized in the perinodular regions of developing cartilage in Prx1-Cre/Vcan(+/+), TGF-beta is widely distributed in Prx1-Cre/Vcan(flox/flox). These results suggest that versican facilitates chondrogenesis and joint morphogenesis, by localizing TGF-beta in the extracellular matrix and regulating its signaling.