By conditional gene ablation in mice, we found that beta-catenin, an essential downstream effector of canonical Wnt signaling, is a key regulator of formation of the apical ectodermal ridge (AER) and of the dorsal-ventral axis of the limbs. By generation of compound mutants, we also show that beta-catenin acts downstream of the BMP receptor IA in AER induction, but upstream or parallel in dorsal-ventral patterning. Thus, AER formation and dorsal-ventral patterning of limbs are tightly controlled by an intricate interplay between Wnt/beta-catenin and BMP receptor signaling.