This study aimed to examine the effect of ubiquitin-specific peptidase 7 (USP7) on the proliferation and differentiation of ATDC5 cells and explore the underlying mechanisms. PCR, western blot, and immunofluorescence staining were used to observe the expression of USP7 after chondrogenic induction. The expressions of markers of chondrogenic and hypertrophic differentiation, and parathyroid hormone-related protein (PTHrP)/parathyroid hormone 1 receptor (PTH1R) signalling, were assessed by PCR, western blot, and histological staining under USP7 knockdown or its inhibitor. Cell proliferation was assessed by the CCK-8 assay and crystal violet staining. An in vivo experiment was performed to verify the functions of USP7 through histological and immunohistochemistry staining. Cyclopamine and abaloparatide were used to verify the signalling pathway. The interactions between USP7 and both PTHrP and sex-determining region Y-box 9 (Sox9) were tested by co-immunoprecipitation. The relationship between Sox9 and PTHrP was tested by chromatin immunoprecipitation and siRNA. USP7 knockdown or its inhibitor suppressed cell proliferation and chondrogenic differentiation but improved hypertrophic differentiation. The in vivo study obtained the same results. USP7 knockdown or its inhibitor inhibited PTHrP/PTH1R signalling to exert its function. Supplementation with cyclopamine suppressed PTHrP/PTH1R signalling and inhibited ATDC5 cell proliferation and differentiation. Supplementation with abaloparatide activated PTH1R to upregulate proliferation and chondrogenic differentiation but downregulated hypertrophic differentiation. Furthermore, USP7 interacted with Sox9 and Sox9 bound to PTTHrP to promote its expression. In conclusion, USP7 modulates the proliferation and differentiation of ATDC5 cells via the Sox9-PTHrP-PTH1R axis.