Abstract During initiation of limb-bud outgrowth in vertebrate embryos, the polarising region (limb-bud organizer) is established upon activation of the Sonic Hedgehog (SHH) signaling molecule at the posterior limb-bud margin. Another hallmark of establishing anteroposterior limb-bud identities is the colinear activation of HoxD genes located at the 5′ end of the cluster (5′HoxD genes). The unique and shared functions of Gli3 and formin in these determinative events were genetically analyzed using single and double homozygous Extra-toes (Xt; disrupting Gli3) and limb deformity(ld; disrupting formin) mouse embryos. Analysis of the limb skeletal phenotypes reveals genetic interaction of the two genes. In addition to loss of digit identity and varying degrees of polydactyly, proximal skeletal elements are severely shortened in Xt;ld double homozygous limbs. The underlying molecular defects affect both establishment of the polarising region and posterior limb-bud identity. In particular, the synergism between Gli3- and formin-mediated mesenchyme-AER interactions positions the SHH signaling center at the posterior limb-bud margin. The present study shows that establishment and positioning of the polarising region is regulated both by restriction of Shh through Gli3 and its positive feedback regulation through formin. Concurrently, Gli3 functions independently of formin during initial posterior nesting of 5′HoxD domains, whereas their subsequent distal restriction and anterior expansion depends on genetic interaction of Gli3 and formin.