Individuals with the birth defect synpolydactyly (SPD) have 1 or more digit duplicated and 2 or more digits fused together. One form of SPD is caused by polyalanine expansions in homeobox d13 (Hoxd13). Here we have used the naturally occurring mouse mutant that has the same mutation, the SPD homolog (Spdh) allele, and a similar phenotype, to investigate the molecular pathogenesis of SPD. A transgenic approach and crossing experiments showed that the Spdh allele is a combination of loss and gain of function. Here we identify retinaldehyde dehydrogenase 2 (Raldh2), the rate-limiting enzyme for retinoic acid (RA) synthesis in the limb, as a direct Hoxd13 target and show decreased RA production in limbs from Spdh/Spdh mice. Intrauterine treatment with RA restored pentadactyly in Spdh/Spdh mice. We further show that RA and WT Hoxd13 suppress chondrogenesis in mesenchymal progenitor cells, whereas Hoxd13 encoded by Spdh promotes cartilage formation in primary cells isolated from Spdh/Spdh limbs, and that this was associated with increased expression of Sox6/9. Increased Sox9 expression and ectopic cartilage formation in the interdigital mesenchyme of limbs from Spdh/Spdh mice suggest uncontrolled differentiation of these cells into the chondrocytic lineage. Thus, we propose that mutated Hoxd13 causes polydactyly in SPD by inducing extraneous interdigital chondrogenesis, both directly and indirectly, via a reduction in RA levels.