Correct development of the limb is dependent on coordination between three distinct signaling centers. Recently, fibroblast growth factor-4 has been identified as a crucial determinant of AER function, which directs limb bud outgrowth, and Sonic hedgehog has been identified as a signaling molecule that mediates ZPA function, which specifies anterior-posterior patterning in the developing limb bud. In addition, Shh and FGF-4 reciprocally reinforce each other's expression via a positive feedback loop, providing a molecular basis for the coordination of limb bud outgrowth and anterior-posterior patterning. The mechanisms by which these signaling centers come to occupy their normal positions in the posterior limb bud during development are not understood. Here we identify and characterize Alx-4, a gene that encodes a paired-type homeodomain protein. Alx-4 is expressed in several populations of mesenchymal cells, including mesenchymal cells in the anterior limb bud, and mice homozygous for targeted disruption of the Alx-4 gene have multiple abnormalities, including preaxial polydactyly. The polydactyly is associated with the formation of an ectopic anterior ZPA, as indicated by anterior expression of Sonic hedgehog, HoxD13 and fibroblast growth factor-4. The expression of other candidate regulators of anterior-posterior positional information in the limb bud, including HoxB8 and Gli3, is not altered in Alx-4 mutant embryos. By chromosomal mapping experiments, Alx-4 is tightly linked to Strong's luxoid, a polydactylous mouse mutant. The results identify Alx-4 as a determinant of anterior-posterior positional identity in the limb and a component of a regulatory program that restricts ZPA formation to the posterior limb bud mesenchyme.