The mandibular condyle formation during temporomandibular joint (TMJ) development exhibits endochondral bone formation, and the elongation process is dependent on the normal cartilage proliferation and differentiation. Retinoids are important for maturation of growth-plate chondrocytes, but the identity of their downstream effectors remains unclear. In this study, we carried out a series of studies at the cellular, biochemical, and molecular levels to determine whether, and if so how, retinoid signaling is related to the expression and function of Indian hedgehog (Ihh) in chondrocyte proliferation. First we analyzed the RA receptor (RAR) and Ihh expression pattern in E18 mandibular condyle. RARα and RARβ mRNA were characterized in the perichondrium around the condyle, whereas RARγ mRNA was expressed in the immature and prehypertrophic chondrocytes and the expression was overlapped with Ihh gene expression. Next we established a high-density culture model of chick cephalic chondrocytes in the prehypertrophic stage. We found that all-trans retinoic acid (RA) induced Ihh mRNA gene expression in this system. The RA pan-antagonist Ro 41-5253 inhibited both endogenous and RA-induced Ihh mRNA in a dose-dependent manner. The Ihh mRNA expression induced by RA required de novo protein synthesis, and was mediated by RARγ. Immunoblots showed that the prehypertrophic chondrocytes contained sizable levels of phosphorylated p38 mitogen-activated protein (MAP) kinase that were time- and dose-dependently increased by the RA treatment. Experimental p38 inhibition led to a severe drop in baseline and RA-stimulated Ihh expression. Exogenous recombinant Ihh stimulated the proliferation of proliferating chondrocytes, whereas RA inhibited the proliferation of these chondrocytes through p38 MAPK. Retinoids appear to play a primary role in controlling both the expression and function of Ihh in prehypertrophic chondrocytes and do so via p38 MAP kinase.