Runx2 (runt-related transcription factor 2, also known as Cbfa1, Osf2 and AML3) is essential for bone development in mice, and mutations in RUNX2 are found in 65-80% of individuals with cleidocranial dysplasia. Although all Runx family members can interact with Cbfbeta (core-binding factor b, encoded by Cbfb), a role for Cbfbeta in bone development has not been demonstrated owing to lethality in Cbfb(-/-) mouse embryos at 12.5 days post coitum (d.p.c.) from hemorrhages and lack of definitive hematopoiesis. Using a 'knock-in' strategy, we generated mouse embryonic stem (ES) cells that express Cbfb fused in-frame to a cDNA encoding green fluorescent protein (GFP). Cbfb(+/GFP) mice had normal life spans and appeared normal, but Cbfb(GFP/GFP) pups died within the first day after birth. The Cbfb(GFP/GFP) mice exhibited a delay in endochondral and intramembranous ossification as well as in chondrocyte differentiation, similar to but less severe than delays observed in Runx2(-/-) mice. We demonstrate that Cbfbeta is expressed in developing bone and forms a functional interaction with Runx2, and that Cbfb(GFP) is a hypomorphic allele. The fusion allele maintains sufficient function in hematopoietic cells to bypass the early embryonic lethality, and identifies a new role for Cbfb in bone development. Our findings raise the possibility that mutations in CBFB may be responsible for some cases of cleidocranial dysplasia that are not linked to mutations in RUNX2.