Insulin-like growth factor-I (IGF-I) and the IGF-I binding proteins (IGFBPs) which modulate IGF-I action have been implicated in the development of the vertebrate limbs and skeleton. We have examined the distribution of IGF-I, IGFBP2 and IGFBP5 in developing chick limb buds and have investigated their functional roles and relationships during chick limb development. IGF-I and IGFBP2 are co-expressed throughout the lateral plate from which limbs form, although IGFBP2, unlike IGF-I, does not promote formation of rudimentary limb buds from non-limb-forming flank regions in vitro. During limb outgrowth, IGF-I is present in non-AER limb ectoderm, but little IGF-I is present in the AER itself, suggesting that restriction of endogenous IGF-I activity may be required for proper AER function. Consistent with this possibility, the ectoderm of mutant limbless and wingless wing buds, which fail to form an AER, continues to express IGF-I. We also found that the AER contains abundant IGFBP2 but that IGFBP2 is not present in limb subridge mesoderm. In contrast, IGFBP2 is present in the distal mesoderm of mutant limbless or wingless limb buds, which fail to grow out. This suggests that attenuation of IGFBP2 expression is controlled by the AER and that cessation of IGFBP2 expression may be necessary for the proliferation and suppression of differentiation of subridge mesoderm that is required for limb outgrowth to occur. Consistent with this possibility, we found that exogenous IGFBP2 inhibits the anti-differentiative activity of the AER in vitro. We also found that regions of cell death in the limb contain abundant IGF-I-immunoreactive cells, consistent with a role for IGF-I in apoptosis. During skeletogenesis, IGF-I and IGFBP2 are co-localized to the condensing central core of the limb, implicating these factors as potential regulators of the onset of chondrogenic differentiation. Intriguingly, we found that IGF-I and IGFBP2 have opposing effects on chondrogenesis, as IGF-I stimulates but IGFBP2 inhibits accumulation of cartilage matrix by micromass cultures in vitro. Long [R(3)] IGF-I, an analog of IGF-I that cannot bind IGFBPs, is more effective than IGF-I in stimulating matrix accumulation, consistent with a negative role for IGFBP2 in chondrogenesis. As the chondrocytes of the limb mature, IGF-I is present only in terminal hypertrophic chondrocytes, which undergo programmed cell death, while IGFBP2 becomes localized to prehypertrophic and hypertrophic chondrocytes, suggesting involvement in chondrocyte maturation. Consistent with this possibility, we found that exogenous IGFBP2 induces precocious expression of Indian hedgehog, a marker of prehypertrophy, in maturing chondrocytes in vitro. IGF-I and IGFBP2 are also present in the osteoblasts, clasts and nascent matrix of the long bones, consistent with roles in endochondral bone formation. Unlike in rodent limbs, IGFBP5 is not expressed by chick limb ectoderm or AER. IGFBP5 expression is highly localized to developing limb musculature and, later, to the developing skeletal elements where it is expressed by osteoblast precursers and osteoblasts. The results of this study suggest potential novel roles for IGF-I and IGFBP2 in several aspects of limb development including limb outgrowth and AER activity, programmed cell death, chondrogenesis and chondrocyte maturation.