Proper formation of the musculoskeletal system requires the coordinated development of the muscle, cartilage and tendon lineages arising from the somitic mesoderm. During early somite development, muscle and cartilage emerge from two distinct compartments, the myotome and sclerotome, in response to signals secreted from surrounding tissues. As the somite matures, the tendon lineage is established within the dorsolateral sclerotome, adjacent to and beneath the myotome. We examine interactions between the three lineages by observing tendon development in mouse mutants with genetically disrupted muscle or cartilage development. Through analysis of embryos carrying null mutations in Myf5 and Myod1, hence lacking both muscle progenitors and differentiated muscle, we identify an essential role for the specified myotome in axial tendon development, and suggest that absence of tendon formation in Myf5/Myod1 mutants results from loss of the myotomal FGF proteins, which depend upon Myf5 and Myod1 for their expression, and are required, in turn, for induction of the tendon progenitor markers. Our analysis of Sox5/Sox6 double mutants, in which the chondroprogenitors are unable to differentiate into cartilage,reveals that the two cell fates arising from the sclerotome, axial tendon and cartilage are alternative lineages, and that cartilage differentiation is required to actively repress tendon development in the dorsolateral sclerotome.