Runx2-Cbfa1, a Runt transcription factor, plays important roles during skeletal development. It is required for differentiation and function of osteoblasts. In its absence, chondrocyte hypertrophy is severely impaired and there is no vascularization of cartilage templates during skeletal development. These tissue-specific functions of Runx2 are likely to be dependent on its interaction with other proteins. We have therefore searched for proteins that may modulate the activity of Runx2. The yeast two-hybrid system was used to identify a groucho homologue, Grg5, as a Runx2-interacting protein. Grg5 enhances Runx2 activity in a cell culture-based assay and by analyses of postnatal growth in mice we demonstrate that Grg5 and Runx2 interact genetically. We also show that Runx2 haploinsufficiency in the absence of Grg5 results in a more severe delay in ossification of cranial sutures and fontanels than occurs with Runx2 haploinsufficiency on a wild-type background. Finally, we find shortening of the proliferative and hypertrophic zones, and expansion of the resting zone in the growth plates of Runx2(+/-) Grg5(-/-) mice that are associated with reduced Ihh expression and Indian hedgehog (Ihh) signaling. We therefore conclude that Grg5 enhances Runx2 activity in vivo.