A number of human congenital disorders present with both heart and limb defects, consistent with common genetic pathways. We have recently shown that the LIM homeodomain transcription factor islet 1 (Isl1) marks a subset of cardiac progenitors. Here, we perform lineage studies with an Isl1Cre mouse line to demonstrate that Isl1 also marks a subset of limb progenitors. In both cardiac and limb progenitors, Isl1 expression is downregulated as progenitors migrate in to form either heart or limb. To investigate common heart-limb pathways in Isl1-expressing progenitors, we ablated the Type I Bmp receptor, Bmpr1a utilizing Isl1Cre/+. Analysis of consequent heart and limb phenotypes has revealed novel requirements for Bmp signaling. Additionally, we find that Bmp signaling in Isl1-expressing progenitors is required for expression of T-box transcription factors Tbx2 and Tbx3 in heart and limb. Tbx3 is required for heart and limb formation, and is mutated in ulnar-mammary syndrome. We provide evidence that the Tbx3 promoter is directly regulated by Bmp Smads in vivo.