Precise coordination of cell growth, proliferation and differentiation is essential for the development of multicellular organisms. Here, we report that although the mechanistic target of rapamycin complex 1 (mTORC1) activity is required for chondrocyte growth and proliferation, its inactivation is essential for chondrocyte differentiation. Hyperactivation of mTORC1 via TSC1 gene deletion in chondrocytes causes uncoupling of the normal proliferation and differentiation programme within the growth plate, resulting in uncontrolled cell proliferation, and blockage of differentiation and chondrodysplasia in mice. Rapamycin promotes chondrocyte differentiation and restores these defects in mutant mice. Mechanistically, mTORC1 downstream kinase S6K1 interacts with and phosphorylates Gli2, and releases Gli2 from SuFu binding, resulting in nuclear translocation of Gli2 and transcription of parathyroid hormone-related peptide (PTHrP), a key regulator of bone development. Our findings demonstrate that dynamically controlled mTORC1 activity is crucial to coordinate chondrocyte proliferation and differentiation partially through regulating Gli2/PTHrP during endochondral bone development.