ABSTRACT: The purpose of this study is to gain insight into the role of BMP signaling in the diversification of the embryonic limb mesodermal progenitors destined to form cartilage, joints, and tendons. Given the importance of extracellular BMP modulators in in vivo systems, we performed a systematic search of those expressed in the developing autopod during the formation of the digits. Here, we monitored the expression of extracellular BMP modulators including: Noggin, Chordin, Chordin-like 1, Chordin-like 2, Twisted gastrulation, Dan, BMPER, Sost, Sostdc1, Follistatin, Follistatin-like 1, Follistatin-like 5 and Tolloid. These factors show differential expression domains in cartilage, joints and tendons. Furthermore, they are induced in specific temporal patterns during the formation of an ectopic extra digit, preceding the appearance of changes that are identifiable by conventional histology. The analysis of gene regulation, cell proliferation and cell death that are induced by these factors in high density cultures of digit progenitors provides evidence of functional specialization in the control of mesodermal differentiation but not in cell proliferation or apoptosis. We further show that the expression of these factors is differentially controlled by the distinct signaling pathways acting in the developing limb at the stages covered by this study. In addition, our results provide evidence suggesting that TWISTED GASTRULATION cooperates with CHORDINS, BMPER, and NOGGIN in the establishment of tendons or cartilage in a fashion that is dependent on the presence or absence of TOLLOID.