Based on our findings that PHD2 is a negative regulator of chondrocyte differentiation and that hypoxia signaling is implicated in the pathogenesis of osteoarthritis, we investigated the consequence of disruption of the Phd2 gene in chondrocytes on the articular cartilage phenotype in mice. Immunohistochemistry detected high expression of PHD2 in the superficial zone (SZ), while PHD3 and HIF-1α (target of PHD2) are mainly expressed in the middle-deep zone (MDZ). Conditional deletion of the Phd2 gene (cKO) in chondrocytes accelerated the transition of progenitors to hypertrophic (differentiating) chondrocytes as revealed by reduced SZ thickness, and increased MDZ thickness, as well as increased chondrocyte hypertrophy. Immunohistochemistry further revealed decreased levels of progenitor markers but increased levels of hypertrophy markers in the articular cartilage of the cKO mice. Treatment of primary articular chondrocytes, in vitro, with IOX2, a specific inhibitor of PHD2, promoted articular chondrocyte differentiation. Knockdown of Hif-1α expression in primary articular chondrocytes using lentiviral vectors containing Hif-1α shRNA resulted in reduced expression levels of Vegf, Glut1, Pgk1, and Col10 compared to control shRNA. We conclude that Phd2 is a key regulator of articular cartilage development that acts by inhibiting the differentiation of articular cartilage progenitors via modulating HIF-1α signaling.