The physical forces that drive morphogenesis are not well characterized in vivo, especially among vertebrates. In the early limb bud, dorsal and ventral ectoderm converge to form the apical ectodermal ridge (AER), although the underlying mechanisms are unclear. By live imaging mouse embryos, we show that prospective AER progenitors intercalate at the dorsoventral boundary and that ectoderm remodels by concomitant cell division and neighbour exchange. Mesodermal expansion and ectodermal tension together generate a dorsoventrally biased stress pattern that orients ectodermal remodelling. Polarized distribution of cortical actin reflects this stress pattern in a β-catenin- and Fgfr2-dependent manner. Intercalation of AER progenitors generates a tensile gradient that reorients resolution of multicellular rosettes on adjacent surfaces, a process facilitated by β-catenin-dependent attachment of cortex to membrane. Therefore, feedback between tissue stress pattern and cell intercalations remodels mammalian ectoderm.