We provide evidence that FGF8 serves as an endogenous inducer of chick limb formation and that its expression in the intermediate mesoderm at the appropriate time and place to trigger forelimb development is directly linked to the mechanism of embryonic kidney differentiation. One function of the limb inducer is to initiate Fgf8 gene expression in the ectoderm overlying the prospective limb-forming territories. FGF8 secreted by the ectoderm then appears to initiate limb bud formation by promoting outgrowth of and Sonic hedgehog expression in the underlying lateral plate mesoderm. FGF8 also maintains mesoderm outgrowth and Sonic hedgehog expression in the established limb bud. Our data thus point to FGF8 as a key regulator of limb development that not only induces and initiates the formation of a limb bud, but also sustains its subsequent development.