Our previous study reported that inactivation of Shox2 led to dysplasia and ankylosis of the temporomandibular joint (TMJ), and that replacing Shox2 with human Shox partially rescued the phenotype with a prematurely worn out articular disc. However, the mechanisms of Shox2 activity in TMJ development remain to be elucidated. In this study, we investigated the molecular and cellular basis for the congenital dysplasia of TMJ in Wnt1-Cre; pMes-stop Shox2 mice. We found that condyle and glenoid fossa dysplasia occurs primarily in the second week after the birth. The dysplastic TMJ of Wnt1-Cre; pMes-stop Shox2 mice exhibits a loss of Collagen type I, Collagen type II, Ihh and Gli2. In situ zymography and immunohistochemistry further demonstrate an up-regulation of matrix metalloproteinases (MMPs), MMP9 and MMP13, accompanied by a significantly increased cell apoptosis. In addition, the cell proliferation and expressions of Sox9, Runx2 and Ihh are no different in the embryonic TMJ between the wild type and mutant mice. Our results show that overexpression of Shox2 leads to the loss of extracellular matrix and the increase of cell apoptosis in TMJ dysplasia by up-regulating MMPs and down-regulating the Ihh signaling pathway.