The formation of cartilage elements in the developing vertebrate limb, where they serve as primordia for the appendicular skeleton, is preceded by the appearance of discrete cellular condensations. Control of the size and spacing of these condensations is a key aspect of skeletal pattern formation. Limb bud cell cultures grown in the absence of ectoderm formed continuous sheet-like masses of cartilage. With the inclusion of ectoderm, these cultures produced one or more cartilage nodules surrounded by zones of noncartilaginous mesenchyme. Ectodermal fibroblast growth factors (FGF2 and FGF8), but not a mesodermal FGF (FGF7), substituted for ectoderm in inhibiting chondrogenic gene expression, with some combinations of the two ectodermal factors leading to well-spaced cartilage nodules of relatively uniform size. Treatment of cultures with SU5402, an inhibitor FGF receptor tyrosine kinase activity, rendered FGFs ineffective in inducing perinodular inhibition. Inhibition of production of FGF receptor 2 (FGFR2) by transfection of wing and leg cell cultures with antisense oligodeoxynucleotides blocked appearance of ectoderm- or FGF-induced zones of perinodular inhibition of chondrogenesis and, when introduced into the limb buds of developing embryos, led to shorter, thicker, and fused cartilage elements. Because FGFR2 is expressed mainly at sites of precartilage condensation during limb development in vivo and in vitro, these results suggest that activation of FGFR2 by FGFs during development elicits a lateral inhibitor of chondrogenesis that limits the expansion of developing skeletal elements.