The Drosophila sprouty gene encodes an antagonist of FGF and EGF signaling whose expression is induced by the signaling pathways that it inhibits. Here we describe a family of vertebrate Sprouty homologs and demonstrate that the regulatory relationship with FGF pathways has been conserved. In both mouse and chick embryos, Sprouty genes are expressed in intimate association with FGF signaling centers. Gain- and loss-of-function experiments demonstrate that FGF signaling induces Sprouty gene expression in various tissues. Sprouty overexpression obtained by infecting the prospective wing territory of the chick embryo with a retrovirus containing a mouse Sprouty gene causes a reduction in limb bud outgrowth and other effects consistent with reduced FGF signaling from the apical ectodermal ridge. At later stages of development in the infected limbs there was a dramatic reduction in skeletal element length due to an inhibition of chondrocyte differentiation. The results provide evidence that vertebrate Sprouty proteins function as FGF-induced feedback inhibitors, and suggest a possible role for Sprouty genes in the pathogenesis of specific human chondrodysplasias caused by activating mutations in Fgfr3.