Little is known about the genesis and patterning of tendons and other connective tissues, mostly owing to the absence of early markers. We have found that Scleraxis, a bHLH transcription factor, is a highly specific marker for all the connective tissues that mediate attachment of muscle to bone in chick and mouse, including the limb tendons, and show that early scleraxis expression marks the progenitor cell populations for these tissues. In the early limb bud, the tendon progenitor population is found in the superficial proximomedial mesenchyme. Using the scleraxis gene as a marker we show that these progenitors are induced by ectodermal signals and restricted by bone morphogenetic protein (BMP) signaling within the mesenchyme. Application of Noggin protein antagonizes this endogenous BMP activity and induces ectopic scleraxis expression. However, the presence of excess tendon progenitors does not lead to the production of additional or longer tendons, indicating that additional signals are required for the final formation of a tendon. Finally, we show that the endogenous expression of noggin within the condensing digit cartilage contributes to the induction of distal tendons.