The apical ectodermal ridge (AER) is a specialized thickening of the distal limb mesenchyme that has been demonstrated to support limb outgrowth and proper limb development. The homeobox gene, Msx-1, is associated with the distal limb mesenchyme (progress zone) and its expression depends upon the presence of the AER in chick limbs. We demonstrate here that the expression of Msx-1 is dependent upon the limb ectoderm in the mouse, but that the inductive capacity of murine limb ectoderm is not restricted to the AER. Msx-1 can also be maintained in limb mesenchyme by the substitution of FGF 4 for the ectoderm; however, we see that local cell-cell interactions are required for high levels of expression. Disruption of cell-cell interactions in the limb mesenchyme results in a dramatic decrease in Msx-1 levels and a precocious expression of MyoD1, suggesting that the limb environment represses differentiation and promotes cell proliferation during early development. BMP 4 and FGF 2 can also maintain Msx-1 expression in limb mesenchyme as well as retinoic acid which is usually associated with polarizing activity in the early limb. Msx-2 expression does not appear to be dependent upon cell-cell interactions as measured in these experiments. Taken together, our data suggest that the expression of Msx-1, but not Msx-2, not only requires factors from the limb ectoderm, but also relies upon cues from local cell interactions and that the spatial distribution of inductive capacities in limb ectoderm differs between the avian and murine systems.