The Sox9 transcription factor plays an essential role in promoting chondrogenesis and regulating expression of chondrocyte extracellular-matrix genes. To identify genes that interact with Sox9 in promoting chondrocyte differentiation, we screened a cDNA library generated from the murine chondrogenic ATDC5 cell line to identify activators of the collagen, type II, alpha 1 (Col2a1) promoter. Here we have shown that paraspeckle regulatory protein 54-kDa nuclear RNA-binding protein (p54nrb) is an essential link between Sox9-regulated transcription and maturation of Sox9-target gene mRNA. We found that p54nrb physically interacted with Sox9 and enhanced Sox9-dependent transcriptional activation of the Col2a1 promoter. In ATDC5 cells, p54nrb colocalized with Sox9 protein in nuclear paraspeckle bodies, and knockdown of p54(nrb) suppressed Sox9-dependent Col2a1 expression and promoter activity. We generated a p54nrb mutant construct lacking RNA recognition motifs, and overexpression of mutant p54nrb in ATDC5 cells markedly altered the appearance of paraspeckle bodies and inhibited the maturation of Col2a1 mRNA. The mutant p54nrb inhibited chondrocyte differentiation of mesenchymal cells and mouse metatarsal explants. Furthermore, transgenic mice expressing the mutant p54nrb in the chondrocyte lineage exhibited dwarfism associated with impairment of chondrogenesis. These data suggest that p54nrb plays an important role in the regulation of Sox9 function and the formation of paraspeckle bodies during chondrogenesis.