Auxins are hormones involved in many cellular, physiological and developmental processes in seed plants and in mosses such as Physcomitrella patens. Control of auxin levels is achieved in higher plants via synthesis of auxin conjugates by members of the GH3 family. The role of the two GH3-like proteins from P. patens for growth and auxin homeostasis was therefore analysed. The in vivo-function of the two P. patens GH3 genes was investigated using single and double knockout mutants. The two P. patens GH3 proteins were also heterologously expressed to determine their enzymatic activity. Both P. patens GH3 enzymes accepted the auxin indole acetic acid (IAA) as substrate, but with different preferences for the amino acid to which it is attached. Cytoplasmic localization was shown for PpGH3-1 tagged with green fluorescent protein (GFP). Targeted knock-out of either gene exhibited an increased sensitivity to auxin, resulting in growth inhibition. On plain mineral media mutants had higher levels of free IAA and less conjugated IAA than the wild type, and this effect was enhanced when auxin was supplied. The DeltaPpGH3-1/DeltaPpGH3-2 double knockout had almost no IAA amide conjugates but still synthesized ester conjugates. Taken together, these data suggest a developmentally controlled involvement of P. patens GH3 proteins in auxin homeostasis by conjugating excess of physiologically active free auxin to inactive IAA-amide conjugates.