During embryonic development, undifferentiated progenitor cells balance the generation of additional progenitor cells with differentiation. Within the developing limb, cartilage cells differentiate from mesodermal progenitors in an ordered process that results in the specification of the correct number of appropriately sized skeletal elements. The internal pathways by which these cells maintain an undifferentiated state while preserving their capacity to differentiate is unknown. Here, we report that the arginine methyltransferase PRMT5 has a crucial role in maintaining progenitor cells. Mouse embryonic buds lacking PRMT5 have severely truncated bones with wispy digits lacking joints. This novel phenotype is caused by widespread cell death that includes mesodermal progenitor cells that have begun to precociously differentiate into cartilage cells. We propose that PRMT5 maintains progenitor cells through its regulation of Bmp4. Intriguingly, adult and embryonic stem cells also require PRMT5 for maintaining pluripotency, suggesting that similar mechanisms might regulate lineage-restricted progenitor cells during organogenesis.