Human linkage studies suggest that craniofacial deformities result from either genetic mutations related to cholesterol metabolism or high-cholesterol maternal diets. However, little is known about the precise roles of intracellular cholesterol metabolism in the development of craniofacial bones, the majority of which are formed through intramembranous ossification. Here, we show that an altered cholesterol metabolic status results in abnormal osteogenesis through dysregulation of primary cilium formation during bone formation. We found that cholesterol metabolic aberrations, induced through disruption of either Dhcr7 (which encodes an enzyme involved in cholesterol synthesis) or Insig1 and Insig2 (which provide a negative feedback mechanism for cholesterol biosynthesis), result in osteoblast differentiation abnormalities. Notably, the primary cilia responsible for sensing extracellular cues were altered in number and length through dysregulated ciliary vesicle fusion in Dhcr7 and Insig1/2 mutant osteoblasts. As a consequence, WNT/β-catenin and hedgehog signaling activities were altered through dysregulated primary cilium formation. Strikingly, the normalization of defective cholesterol metabolism by simvastatin, a drug used in the treatment of cholesterol metabolic aberrations, rescued the abnormalities in both ciliogenesis and osteogenesis in vitro and in vivo. Thus, our results indicate that proper intracellular cholesterol status is crucial for primary cilium formation during skull formation and homeostasis.