Cells in the early vertebrate somite receive cues from surrounding tissues, which are important for their specification. A number of signalling pathways involved in somite patterning have been described extensively. By contrast, the interactions between cells from different regions within the somite are less well characterised. Here, we demonstrate that myotomally derived FGFs act through the MAPK signal transduction cascade and in particular, ERK1/2 to activate scleraxis expression in a population of mesenchymal progenitor cells in the dorsal sclerotome. We show that the levels of active, phosphorylated ERK protein in the developing somite are crucial for the expression of scleraxis and Mkp3. MKP3 is a dual specificity phosphatase and a specific antagonist of ERK MAP kinases and we demonstrate that in somites Mkp3 transcription depends on the presence of active ERK. Therefore, MKP3 and ERK MAP kinase constitute a negative feedback loop activated by FGF in sclerotomal progenitor cells. We propose that tight control of ERK signalling strength by MKP3 is important for the appropriate regulation of downstream cellular responses including the activation of scleraxis. We show that increased or decreased levels of phosphorylated ERK result in the loss of scleraxis transcripts and the loss of distal rib development, highlighting the importance of the MKP3-ERK-MAP kinase mediated feedback loop for cell specification and differentiation.