The apical ectodermal ridge (AER) is a transient embryonic structure essential for the induction, patterning and outgrowth of the vertebrate limb. However, the mechanism of AER function in limb skeletal patterning has remained unclear. In this study, we genetically ablated the AER by conditionally removing FGFR2 function and found that distal limb development failed in mutant mice. We showed that FGFR2 promotes survival of AER cells and interacts with Wnt/beta-catenin signaling during AER maintenance. Interestingly, cell proliferation and survival were not significantly reduced in the distal mesenchyme of mutant limb buds. We established Hoxa13 expression as an early marker of distal limb progenitors and discovered a dynamic morphogenetic process of distal limb development. We found that premature AER loss in mutant limb buds delayed generation of autopod progenitors, which in turn failed to reach a threshold number required to form a normal autopod. Taken together, we have uncovered a novel mechanism, whereby the AER regulates the number of autopod progenitors by determining the onset of their generation.