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Twist1 has been demonstrated to play critical roles in the early development of neural crest and mesodermally derived tissues including the limb. Twist2 has been less well characterised but its relatively late onset of expression suggests specific roles in the development of a number of organs. Expression of Twist2 within the developing limbs begins after formation of the limb bud and persists within the peripheral mesenchyme until digital rays condense. We have used RCAS-mediated overexpression in chick to investigate the function of Twist2 in limb development. Viral misexpression following injection into the lateral plate mesoderm results in a spectrum of hypoplastic limb phenotypes. These include generalized shortening of the entire limb, fusion of the autopod skeletal elements, loss of individual digits or distal truncation resulting in complete loss of the autopod. These phenotypes appear to result from a premature termination of limb outgrowth and manifest as defective growth in both the proximal–distal and anterior–posterior axes. In situ hybridisation analysis demonstrates that many components of the Shh/Grem1/Fgf regulatory loop that controls early limb growth and patterning are downregulated by Twist2 overexpression. Grem1 has a complementary expression pattern to Twist2 within the limb primordia and co-expression of both Grem1 and Twist2 results in a rescue of the Twist2 overexpression phenotype. We demonstrate that Twist proteins directly repress Grem1 expression via a regulatory element downstream of the open reading frame. These data indicate that Twist2 regulates early limb morphogenesis through a role in terminating the Shh/Grem1/Fgf autoregulatory loop.