Transcriptional cascades responsible for initiating the formation of vertebrate embryonic structures such as limbs are not well established. Limb formation occurs as a result of interplay between fibroblast growth factor (FGF) and Wnt signaling. What initiates these signaling cascades and thus limb bud outgrowth at defined locations along the anteroposterior axis of the embryo is not known. The T-box transcription factor TBX5 is important for normal heart and limb formation, but its role in early limb development is not well defined. We report that mouse embryos lacking Tbx5 do not form forelimb buds, although the patterning of the lateral plate mesoderm into the limb field is intact. Tbx5 is not essential for an early establishment of forelimb versus hindlimb identity. In the absence of Tbx5, the FGF and Wnt regulatory loops required for limb bud outgrowth are not established, including initiation of Fgf10 expression. Tbx5 directly activates the Fgf10 gene via a conserved binding site, providing a simple and direct mechanism for limb bud initiation. Lef1/Tcf1-dependent Wnt signaling is not essential for initiation of Tbx5 or Fgf10 transcription, but is required in concert with Tbx5 for maintenance of normal levels of Fgf10 expression. We conclude that Tbx5 is not essential for the early establishment of the limb field in the lateral plate mesoderm but is a primary and direct initiator of forelimb bud formation. These data suggest common pathways for the differentiation and growth of embryonic structures downstream of T-box genes.