Activation of the signal transducers and activators of transcription (STAT) pathway is important in fibroblast growth factor (FGF) modulation of chondrocyte proliferation and endochondral bone formation during embryogenesis. However, it is not known if the FGF/STAT signaling pathway is important for postnatal bone formation. To examine this, we have characterized a novel skeletal phenotype in Stat1-/- mice in which we find a significant increase in bone mineral density, bone mineral content, and other parameters of bone growth. The data show that osteoblasts derived from Stat1-/- mice have decreased expression of cell cycle inhibitor p21WAF/CIP and FGF receptor 3, a known negative regulator of chondrocyte proliferation. Interestingly, Stat1-/- osteoblasts showed increased expression of FGF18 in vivo and increased responsiveness to FGF18 in vitro. These results suggest a mechanism for the regulation of the osteoblast in which Stat1 functions not only to directly regulate the cell cycle but also to modify the repertoire of FGF receptor expression from a potentially inhibitory receptor, FGFR3 to a stimulatory receptor such as FGFR1 or FGFR2.