During endochondral ossification, chondrocytes secrete a proteoglycan (PG)-rich extracellular matrix that can inhibit the process of cartilage maturation, including expression of Ihh and Col10a1. Because bone morphogenetic proteins (BMPs) can promote cartilage maturation, we hypothesized that cartilage PGs normally inhibit BMP signalling. Accordingly, BMP signalling was evaluated in chondrocytes of wild-type and PG mutant (fam20b−/-) zebrafish and inhibited with temporal control using the drug DMH1 or an inducible dominant-negative BMP receptor transgene (dnBMPR). Compared to wild type, phospho-Smad1/5/9, but not phospho-p38, was increased in fam20b−/-chondrocytes, but only after they secreted PGs. Phospho-Smad1/5/9 was decreased in DMH1-treated or dnBMPR-activated wild-type chondrocytes, while DMH1 also decreased phospho-p38 levels. ihha and col10a1a decreased in DMH1-treated or dnBMPR-activated chondrocytes, and less perichondral bone formed. Finally, early ihha and col10a1a expression and early perichondral bone formation of fam20b mutants were rescued with DMH1 treatment or dnBMPR activation. Therefore, PG inhibition of canonical BMP-dependent cartilage maturation delays endochondral ossification, and these results offer hope for the development of growth factor therapies for skeletal defects of PG diseases.