Sorting and degradation of receptors and associated signaling molecules maintain homeostasis of conserved signaling pathways during cell specification and tissue development. Yet, whether machineries that sort signaling proteins act preferentially on different receptors and ligands in different contexts remains mysterious. Here, we show that Vacuolar protein sorting 25, Vps25, a component of ESCRT-II (Endosomal Sorting Complex Required for Transport II), directs preferential endosome-mediated modulation of FGF signaling in limbs. By ENU-induced mutagenesis, we isolated a polydactylous mouse line carrying a hypomorphic mutation of Vps25 (Vps25(ENU)). Unlike Vps25-null embryos we generated, Vps25(ENU/ENU) mutants survive until late gestation. Their limbs display FGF signaling enhancement and consequent hyperactivation of the FGF-SHH feedback loop causing polydactyly, whereas WNT and BMP signaling remain unperturbed. Notably, Vps25(ENU/ENU) Mouse Embryonic Fibroblasts exhibit aberrant FGFR trafficking and degradation; however, SHH signaling is unperturbed. These studies establish that the ESCRT-II machinery selectively limits FGF signaling in vertebrate skeletal patterning.