Cartilage patterning and differentiation are prerequisites for skeletal development through endochondral ossification (EO). Multipotential mesenchymal cells undergo a complex process of cell fate determination to become chondroprogenitors and eventually differentiate into chondrocytes. These developmental processes require the orchestration of cell-cell and cell-matrix interactions. In this review, we present limb bud development as a model for cartilage patterning and differentiation. We summarize the molecular and cellular events and signaling pathways for axis patterning, cell condensation, cell fate determination, digit formation, interdigital apoptosis, EO, and joint formation. The interconnected nature of these pathways underscores the effects of genetic and teratogenic perturbations that result in skeletal birth defects. The topics reviewed also include limb dysmorphogenesis as a result of genetic disorders and environmental factors, including FGFR, GLI3, GDF5/CDMP1, Sox9, and Cbfa1 mutations, as well as thalidomide- and alcohol-induced malformations. Understanding the complex interactions involved in cartilage development and EO provides insight into mechanisms underlying the biology of normal cartilage, congenital disorders, and pathologic adult cartilage.