Chordin-like 1 (CHRDL1) is a secreted bone morphogenetic protein (BMP) antagonist expressed in mesenchymal tissues whose function in development of the skeleton has not been examined in detail. Here we show Chrdl1 is dynamically expressed in the early distal limb bud mesenchyme, with expression becoming downregulated as development proceeds. Chrdl1 expression is largely excluded from the critical signaling center of the posterior limb bud, the Zone of Polarizing Activity (ZPA), as has been described for the BMP antagonist Gremlin (GREM1) (Scherz et al., 2004, Science, 305, 396-399). Unlike Grem1, Chrdl1 is expressed in the hindlimb by a small subset of ZPA cells and their descendants suggesting divergent regulation and function between the various BMP antagonists. Ectopic expression of Chrdl1 throughout the avian limb bud using viral misexpression resulted in an oligodactyly phenotype with loss of digits from the anterior limb, although the development of more proximal elements of the zeugopod and stylopod were unaffected. Overgrowths of soft tissue and syndactyly were also observed, resulting from impaired apoptosis and failure of the anterior mesenchyme to undergo SOX9-dependent chondrogenesis, instead persisting as an interdigital-like soft tissue phenotype. Sonic hedgehog (SHH) and fibroblast growth factor (FGF) signaling were upregulated and persisted later in development, however these changes were only detected late in limb development at timepoints when endogenous Grem1 would normally be downregulated and increasing BMP signaling would cause termination of Shh and Fgf expression. Our results suggest that the early stages of the GREM1-SHH-FGF signaling network are resistant to Chrdl1-overexpression, leading to normal formation of proximal limb structures, but that later Bmp expression, impaired by ectopic CHRDL1, is essential for formation of the correct complement of digits.