Background During skeletogenesis, protein levels of β-catenin in the canonical Wnt signaling pathway determine lineage commitment of skeletal precursor cells to osteoblasts and chondrocytes. Adenomatous polyposis coli (Apc) is a key controller of β-catenin turnover by down-regulating intracellular levels of β-catenin. Results To investigate whether Apc is involved in lineage commitment of skeletal precursor cells, we generated conditional knockout mice lacking functional Apc in Col2a1-expressing cells. In contrast to other models in which an oncogenic variant of β-catenin was used, our approach resulted in the accumulation of wild type β-catenin protein due to functional loss of Apc. Conditional homozygous Apc mutant mice died perinatally showing greatly impaired skeletogenesis. All endochondral bones were misshaped and lacked structural integrity. Lack of functional Apc resulted in a pleiotropic skeletal cell phenotype. The majority of the precursor cells lacking Apc failed to differentiate into chondrocytes or osteoblasts. However, skeletal precursor cells in the proximal ribs were able to escape the noxious effect of functional loss of Apc resulting in formation of highly active osteoblasts. Inactivation of Apc in chondrocytes was associated with dedifferentiation of these cells. Conclusion Our data indicate that a tight Apc-mediated control of β-catenin levels is essential for differentiation of skeletal precursors as well as for the maintenance of a chondrocytic phenotype in a spatio-temporal regulated manner.