The mesenchyme of the developing vertebrate limb responds to inductive signals, giving rise to skeletal elements that define limb shape and size. Several signals emanate from the limb ectoderm and in particular from the specialized epithelium of the apical ectodermal ridge (AER), including three members of the bone morphogenetic protein (BMP) family of signaling molecules, BMP2, BMP4 and BMP7. Using the Cre/loxP system in mice, we rendered limb bud mesenchyme insensitive to BMP signals through the type I receptor, BMPR-IA. Conditional mutants had shortened limbs and almost complete agenesis of the autopod because of reduced cell proliferation. Reduced expression of downstream BMP signaling targets, Msx1, Msx2 and gremlin in the distal mesenchyme (progress zone) correlated with decreased levels of cyclin D1 and Wnt5a. Ectopic anterior activation of sonic hedgehog (SHH) signaling and Hox expression revealed alterations in anterior-posterior (AP) patterning. Abnormal localization of Lmx1b-expressing cells in the ventral mesenchyme, along with histological alterations and an abnormal melanization pattern of the limb, indicate altered dorsal-ventral (DV) boundaries. These findings suggest that signaling through BMPR-IA in limb mesenchyme is essential for distal outgrowth and also influences AP and DV patterning.