Embryonic limb outgrowth is accomplished by the proliferation of mesodermal cells in the progress zone. In this region, mesodermal cells are maintained in an undifferentiated and proliferating state by the action of the apical ectodermal ridge (AER). Differentiation of these cells into individual skeletal elements occurs when the cells are displaced proximally and leave the influence of the AER as a consequence of the accumulation of cells in that region. Here we review the evidence obtained in the last few years showing that members of the transforming growth factor beta (TGFbeta) subfamily and bone morphogenetic proteins (BMPs) act as proximal signals in the autopod regulating the fate of the progress zone cells towards chondrogenesis or apoptosis. Our findings show that apoptosis is regulated by BMPs while chondrogenesis requires the interaction of TGFbetas and BMPs. Fibroblast growth factors (FGFs) produced by the AER exert an opposite function to both TGFbetas and BMPs, maintaining the progress zone cells in an undifferentiated state.