Several forms of human dwarfism are due to activating mutations in FGFR3 highlighting the role of FGF signaling in the growth attenuation of cartilage. Here, we studied the effects of FGF2 on RCS chondrocytes. Treatment with FGF2 induced growth arrest in the G1 phase of the cell cycle and partial de-differentiation of cells manifested by changes in cell morphology, loss of the cartilage-like extracellular matrix, and down-regulation of aggrecan expression. FGF2 activated phospholipase Cgamma, protein kinase B, and Erk and p38 MAP kinases. Chemical inhibition of FGFR3 and MEK1/2 antagonized FGF2-mediated growth arrest. Expression of a dominant-negative Ras mutant resulted in a partial reversal of growth inhibition while expression of constitutively activated Ras led to Erk-dependent growth arrest, further demonstrating the role of the Ras/Erk pathway in this phenotype. At the molecular level, FGF2-induced growth arrest was initiated by disintegration of cyclin D3-cdk6 complex followed by increased association of p21(WAF1) and p27(Kip1) with the cyclin-cdk2 and cyclin-cdk4 complexes leading to inhibition of their kinase activities and ultimately to underphosphorylation of the p107 and p130 pocket proteins. Both p21(WAF1) and p27(Kip1) accumulated upon FGF2 treatment, but this accumulation occurred at the protein level at least partially due to interaction with transcriptionally induced cyclin D1.