Heterochromatin protein 1 binding protein 3 (HP1BP3) is a recently described histone H1-related protein with roles in chromatin structure and transcriptional regulation. To explore the potential physiological role of HP1BP3, we have previously described an Hp1bp3(-/-) mouse model with reduced postnatal viability and growth. We now find that these mice are proportionate dwarfs, with reduction in body weight, body length, and organ weight. In addition to their small size, microcomputed tomography analysis showed that Hp1bp3(-/-) mice present a dramatic impairment of their bone development and structure. By 3 weeks of age, mice of both sexes have severely impaired cortical and trabecular bone, and these defects persist into adulthood and beyond. Primary cultures of both osteoblasts and osteoclasts from Hp1bp3(-/-) bone marrow and splenocytes, respectively, showed normal differentiation and function, strongly suggesting that the impaired bone accrual is due to noncell autonomous systemic cues in vivo. One major endocrine pathway regulating both body growth and bone acquisition is the IGF regulatory system, composed of IGF-1, the IGF receptors, and the IGF-binding proteins (IGFBPs). At 3 weeks of age, Hp1bp3(-/-) mice exhibited a 60% reduction in circulating IGF-1 and a 4-fold increase in the levels of IGFBP-1 and IGFBP-2. These alterations were reflected in similar changes in the hepatic transcripts of the Igf1, Igfbp1, and Igfbp2 genes. Collectively, these results suggest that HP1BP3 plays a key role in normal growth and bone development by regulating transcription of endocrine IGF-1 components.