UDP-xylose synthase (Uxs1) is strongly conserved from bacteria to humans, but because no mutation has been studied in any animal, we do not understand its roles in development. Furthermore, no crystal structure has been published. Uxs1 synthesizes UDP-xylose, which initiates glycosaminoglycan attachment to a protein core during proteoglycan formation. Crystal structure and biochemical analyses revealed that an R233H substitution mutation in zebrafish uxs1 alters an arginine buried in the dimer interface, thereby destabilizing and, as enzyme assays show, inactivating the enzyme. Homozygous uxs1 mutants lack Alcian blue-positive, proteoglycan-rich extracellular matrix in cartilages of the neurocranium, pharyngeal arches, and pectoral girdle. Transcripts for uxs1 localize to skeletal domains at hatching. GFP-labeled neural crest cells revealed defective organization and morphogenesis of chondrocytes, perichondrium, and bone in uxs1 mutants. Proteoglycans were dramatically reduced and defectively localized in uxs1 mutants. Although col2a1a transcripts over-accumulated in uxs1 mutants, diminished quantities of Col2a1 protein suggested a role for proteoglycans in collagen secretion or localization. Expression of col10a1, indian hedgehog, and patched were disrupted in mutants, reflecting improper chondrocyte/perichondrium signaling. Up-regulation of sox9a, sox9b, and runx2b in mutants suggested a molecular mechanism consistent with a role for proteoglycans in regulating skeletal cell fate. Together, our data reveal time-dependent changes to gene expression in uxs1 mutants that support a signaling role for proteoglycans during at least two distinct phases of skeletal development. These investigations are the first to examine the effect of mutation on the structure and function of Uxs1 protein in any vertebrate embryos, and reveal that Uxs1 activity is essential for the production and organization of skeletal extracellular matrix, with consequent effects on cartilage, perichondral, and bone morphogenesis.