Lacrimo-auriculo-dento-digital (LADD) syndrome is characterized by abnormalities in lacrimal and salivary glands, in teeth, and in the distal limbs. Genetic studies have implicated heterozygous mutations in fibroblast growth factor 10 (FGF10) and in FGF receptor 2 (FGFR2) in LADD syndrome. However, it is not clear whether LADD syndrome mutations (LADD mutations) are gain- or loss-of-function mutations. In order to reveal the molecular mechanism underlying LADD syndrome, we have compared the biological properties of FGF10 LADD and FGFR2 LADD mutants to the activities of their normal counterparts. These experiments show that the biological activities of three different FGF10 LADD mutants are severely impaired by different mechanisms. Moreover, haploinsufficiency caused by defective FGF10 mutants leads to LADD syndrome. We also demonstrate that the tyrosine kinase activities of FGFR2 LADD mutants expressed in transfected cells are strongly compromised. Since tyrosine kinase activity is stimulated by ligand-induced receptor dimerization, FGFR2 LADD mutants may also exert a dominant inhibitory effect on signaling via wild-type FGFR2 expressed in the same cell. These experiments underscore the importance of signal strength in mediating biological responses and that relatively small changes in receptor signaling may influence the outcome of developmental processes in cells or organs that do not possess redundant signaling pathway.