Trps1, the gene mutated in human Tricho-Rhino-Phalangeal syndrome, represents an atypical member of the GATA-family of transcription factors. Here we show that Trps1 interacts with Indian hedgehog (Ihh)/Gli3 signaling and regulates chondrocyte differentiation and proliferation. We demonstrate that Trps1 specifically binds to the transactivation domain of Gli3 in vitro and in vivo, whereas the repressor form of Gli3 does not interact with Trps1. A domain of 185aa within Trps1, containing three predicted zinc fingers, is sufficient for interaction with Gli3. Using different mouse models we find that in distal chondrocytes Trps1 and the repressor activity of Gli3 are required to expand distal cells and locate the expression domain of Parathyroid hormone related peptide. In columnar proliferating chondrocytes Trps1 and Ihh/Gli3 have an activating function. The differentiation of columnar and hypertrophic chondrocytes is supported by Trps1 independent of Gli3. Trps1 seems thus to organize chondrocyte differentiation interacting with different subsets of co-factors in distinct cell types.