The zone of polarizing activity is the primary signaling center controlling anterior-posterior patterning of the amniote limb bud. The autopodial interdigits (IDs) are secondary signaling centers proposed to determine digit identity by acting on the cells of the digital ray. Here, we focus on events accompanying digital fate determination and define a region of the digital ray that expresses Sox9 and Bmpr1b and is phosphorylated-SMAD1/5/8 (p-SMAD1/5/8) positive. We name this region the phalanx-forming region (PFR), and show that the PFR cells arise from the distal subridge mesenchyme of digital ray. This phalanx-forming cell lineage is subsequently committed to the cartilage lineage; the fate of these cells is initially labile but becomes fixed as they are incorporated into the condensed cartilage of the digit primordium. Using an in vivo reporter assay, we establish that each digital PFR has a unique p-SMAD1/5/8 activity signature. In addition, we show that changes in this activity correlate with the identity of the digit that forms after experimental manipulation, supporting the idea that threshold signaling levels can lead to different developmental outcomes in a morphogenetic field. Our data define the molecular profile of the PFR, and we propose a model for understanding formation and variation of digits during autopodial development.