Deficiency of the collagen receptor discoidin domain receptor tyrosine kinase (DDR2) in mice and humans results in dwarfism and short limbs, of which the mechanism remains unknown. Here we report that DDR2 is a key regulator of osteoblast differentiation. DDR2 mRNA expression was increased at an early stage of induced osteoblast differentiation. In the subchondral bone of human osteoarthritic knee, DDR2 was detected in osteoblastic cells. In mouse embryos, DDR2 expression was found from E11 to E15, preceding osteocalcin (OCN) and coinciding with Runx2 expression. Activating transcription factor 4 (ATF4) enhanced DDR2 mRNA expression, and knockdown of ATF4 expression delayed DDR2 induction during osteoblast differentiation. A CCAAT/enhancer binding protein (C/EBP) binding site at -1150 bp in the DDR2 promoter was required for ATF4-mediated DDR2 activation. C/EBPβ bound to and cooperated with ATF4 in stimulating DDR2 transcription; accordingly, the ATF4 mutants deficient of C/EBPβ binding were incapable of transactivating DDR2. Overexpression of DDR2 increased osteoblast-specific gene expression. Conversely, knockdown of DDR2 suppressed osteogenic marker gene expression and matrix mineralization during the induced osteogenesis. The stimulation of p38 MAPK by DDR2 was required for DDR2-induced activation of Runx2 and OCN promoters. Together our findings uncover a pathway in which ATF4, by binding to C/EBPβ transcriptionally upregulates DDR2 expression, and DDR2, in turn, activates Runx2 through p38 MAPK to promote osteoblast differentiation.