The biological consequences of constitutive fibroblast growth factor-4 (fgf-4) expression were investigated in chimeric embryos prepared between wild-type host embryos and murine ES cells transfected with a construct in which expression of the murine fgf-4 gene was directed by the phosphoglycerate kinase (PGK-1) promoter. The embryos exhibit abnormalities of the limbs and the anterior central nervous system (CNS). The limb phenotype comprised the induction of outgrowth along the lateral ridge between the definitive fore and hind limbs resembling the early phases of limb development. The CNS defects comprised a complete absence, or marked reduction in forebrain and midbrain structures and rudimentary or absent eye development. Constitutive expression of fgf-4 was also accompanied by ectopic expression of the sonic hedgehog (shh) and msx-1 genes in the lateral ridge. These findings indicate that FGF exhibits multiple activities in early development which include the ability to induce the expression of early markers of limb development in the lateral ridge.