The origin and differentiation mechanism of articular chondrocytes remain poorly understood. Broadly, the difference in developmental mechanisms of articular and growth-plate cartilage is still less elucidated. Here, we identified that the nuclear factor of activated T-cells cytoplasmic 1 (NFATc1) is a crucial regulator of articular, but not growth-plate, chondrocyte differentiation during development. At the early stage of mouse knee development (embryonic day 13.5), NFATc1-expressing cells were mainly located in the flanking region of the joint interzone. With development, NFATc1-expressing cells generated almost all articular chondrocytes, but not chondrocytes in limb growth-plate primordium. NFATc1-expressing cells displayed prominent capacities for colony formation and multipotent differentiation. Transcriptome analyses revealed a set of characteristic genes in NFATc1-enriched articular cartilage progenitors. Strikingly, the expression of NFATc1 was diminished with articular chondrocyte differentiation and suppressing NFATc1 expression in articular cartilage progenitors was sufficient to induce spontaneous chondrogenesis while overexpressing NFATc1 suppresses chondrogenesis. Mechanistically, NFATc1 negatively regulated the transcriptional activity of the Col2a1 gene. Thus, our results reveal that NFATc1 characterizes articular, but not growth-plate, cartilage progenitors during development and negatively determines articular chondrocyte differentiation at least partly through regulating COL2A1 gene transcription.