During endochondral ossification, the skeletal elements of vertebrate limbs form and elongate via coordinated control of chondrocyte and osteoblast differentiation and proliferation. The role of signaling by the ErbB family of receptor tyrosine kinases, which consists of ErbB1 (epidermal growth factor receptor or EGFR), ErbB2, ErbB3 and ErbB4, has been little studied during cartilage and bone development. Signaling by the ErbB network generates a diverse array of cellular responses via formation of ErbB dimers activated by distinct ligands that produce distinct signal outputs. Herstatin is a soluble ErbB2 receptor that acts in a dominant negative fashion to inhibit ErbB signaling by binding to endogenous ErbB receptors, preventing functional dimer formation. Here, we examine the effects of Herstatin on limb skeletal element development in transgenic mice, achieved via Prx1 promoter-driven expression in limb cartilage and bone. The limb skeletal elements of Prx1-Herstatin embryos are shortened, and chondrocyte maturation and osteoblast differentiation are delayed. In addition, proliferation by chondrocytes and periosteal cells of Prx1-Herstatin limb skeletal elements is markedly reduced. Our study identifies requirements for ErbB signaling in the maintenance of chondrocyte and osteoblast proliferation involved in the timely progression of chondrocyte maturation and periosteal osteoblast differentiation.