The apical ectodermal ridge (AER), a rim of thickened ectodermal cells at the interface between the dorsal and ventral domains of the limb bud, is required for limb outgrowth and patterning. We have previously shown that the limbs of En1 mutant mice display dorsal-ventral and proximal-distal abnormalities, the latter being reflected in the appearance of a broadened AER and formation of ectopic ventral digits. A detailed genetic analysis of wild-type, En1 and Wnt7a mutant limb buds during AER development has delineated a role for En1 in normal AER formation. Our studies support previous suggestions that AER maturation involves the compression of an early broad ventral domain of limb ectoderm into a narrow rim at the tip and further show that En1 plays a critical role in the compaction phase. Loss of En1 leads to a delay in the distal shift and stratification of cells in the ventral half of the AER. At later stages, this often leads to development of a secondary ventral AER, which can promote formation of an ectopic digit. The second AER forms at the juxtaposition of the ventral border of the broadened mutant AER and the distal border of an ectopic Lmx1b expression domain. Analysis of En1/Wnt7a double mutants demonstrates that the dorsalizing gene Wnt7a is required for the formation of the ectopic AERs in En1 mutants and for ectopic expression of Lmx1b in the ventral mesenchyme. We suggest a model whereby, in En1 mutants, ectopic ventral Wnt7a and/or Lmx1b expression leads to the transformation of ventral cells in the broadened AER to a more dorsal phenotype. This leads to induction of a second zone of compaction ventrally, which in some cases goes on to form an autonomous secondary AER.