Limb bud formation and outgrowth during vertebrate embryonic development rely on BMP signalling via the transcriptional activator SMAD4. However, the genetic regulation of these processes by SMAD4 has so far remained elusive. Now, Aimée Zuniga and co-workers use a conditional SMAD4 knockout allele to reveal differentially expressed Smad4 target genes during the formation of mouse limb buds. At the onset of limb bud development, cholesterol biosynthesis enzymes are reduced in the absence of SMAD4, which causes a decrease in intracellular cholesterol. Moreover, lack of SMAD4 perturbs BMP signalling during early forelimb bud development, whereas TGFβ signalling, another regulator of Smad4, is less affected. The authors show that Smad4 upregulates target genes by binding to enhancers in the anterior forelimb bud mesenchyme; upon knockout of SMAD4 in limb buds, the expression of these genes is consequently decreased. Interestingly, in early mouse limb buds, Smad4 and Shh have opposing effects on most genes differentially expressed in the absence of either protein, with anteriorly expressed genes being positively regulated by Smad4 and negatively regulated by Shh. In posteriorly biased genes, this relationship is inverted. Collectively, these findings reveal opposing regulatory effects of SHH- and SMAD4-mediated BMP signalling on anterior and posterior genes in early limb buds.