C-type natriuretic peptide (CNP) stimulates endochondrial ossification by activating the transmembrane guanylyl cyclase, natriuretic peptide receptor-B (NPR-B). Recently, a spontaneous autosomal recessive mutation that causes severe dwarfism in mice was identified. The mutant, called long bone abnormality (lbab), contains a single point mutation that converts an arginine to a glycine in a conserved coding region of the CNP gene, but how this mutation affects CNP activity has not been reported. Here, we determined that 30-fold to greater than 100-fold more CNP(lbab) was required to activate NPR-B as compared to wild-type CNP in whole cell cGMP elevation and membrane guanylyl cyclase assays. The reduced ability of CNP(lbab) to activate NPR-B was explained, at least in part, by decreased binding since 10-fold more CNP(lbab) than wild-type CNP was required to compete with [125I][Tyr0]CNP for receptor binding. Molecular modeling suggested that the conserved arginine is critical for binding to an equally conserved acidic pocket in NPR-B. These results indicate that reduced binding to and activation of NPR-B causes dwarfism in lbab(-/-) mice.