Limb buds in the limbless chick begin to form normally but fail to form an AER and ultimately degenerate. Wnt7a and LMX-1, which are restricted to the dorsal half of a normal limb bud, are expressed throughout the ectoderm and mesenchyme of the mutant buds, respectively. Engrailed-1, normally expressed in ventral limb ectoderm, is not expressed in the limbless bud. This defect precedes the normal period of AER formation and no localized expression of genes normally found in the AER is observed in limbless buds. Consistent with the lack of molecular specialization of an AER, Shh and BMP-2 are not expressed in the ZPA of the mutant bud. Despite the lack of Shh, FGF-4, or BMP-2 expression, the hoxd genes are expressed at low levels in the posterior mesenchyme of the bud. Forced expression of Shh fails to rescue the positive feedback loop between the AER and the ZPA and does not lead to distal outgrowth. However, Shh does maintain the part of the bud formed during pre-AER stages. These results support the importance of the dorsal/ventral boundary in the initiation of AER formation and imply that Shh is not required for the initial activation of polarized hoxd gene expression during limb development.