In Drosophila, the Dorsal protein establishes the embryonic dorso-ventral axis during development. Here we show that the vertebrate homologue of Dorsal, nuclear factor-kappa B (NF-kappaB), is vital for the formation of the proximo-distal organizer of the developing limb bud, the apical ectodermal ridge (AER). Transcription of the NF-kappaB proto-oncogene c-rel is regulated, in part, during morphogenesis of the limb bud by AER-derived signals such as fibroblast growth factors. Interruption of NF-kappaB activity using viral-mediated delivery of an inhibitor results in a highly dysmorphic AER, reduction in overall limb size, loss of distal elements and reversal in the direction of limb outgrowth. Furthermore, inhibition of NF-kappaB activity in limb mesenchyme leads to a reduction in expression of Sonic hedgehog and Twist but derepresses expression of the bone morphogenetic protein-4 gene. These results are the first evidence that vertebrate NF-kappaB proteins act to transmit growth factor signals between the ectoderm and the underlying mesenchyme during embryonic limb formation.