The LIM-homeodomain transcription factor lmx1b is a critical regulator of vertebrate dorsal–ventral limb patterning. In the mouse embryo, lmx1b is initially transcribed throughout most, if not all, limb bud cells at early stages, but then rapidly becomes restricted specifically to dorsal mesenchymal cells with a sharp boundary between the dorsal-positive and ventral-negative expression domains. How this expression pattern is initially established is not well understood, nor are mechanism(s) that maintain a sharp dorsal–ventral boundary between lmx1b expressing and nonexpressing cells. Here, we employ a genetic fate mapping approach to establish that the transition from a broad expression domain of lmx1b to a restricted dorsal domain of expression involves selective loss of lmx1b expression in presumptive ventral cells. In addition, we show that once lmx1b expression becomes restricted to dorsal mesenchyme cells, these cells form a lineage-based compartment that prevents mixing between dorsal and ventral cells, consistent with recent fate mapping experiments carried out the chick and mouse (Pearse et al.,2007, Dev Biol 310:388–400; Arques et al.,2007, Development 134:3713–3722). Moreover, lmx1b activity is required to maintain, but not to establish the dorsal mesenchymal compartment likely through a mechanism involving differential cell adhesion. Taken together, our results indicate that lmx1b expressing cell define a dorsal limb bud mesenchymal lineage compartment and that maintenance of this compartment depends on lmx1b function. genesis 47:224–233, 2009. © 2009 Wiley-Liss, Inc.