WNT signaling is critical in most aspects of skeletal development and homeostasis, and antagonists of WNT signaling are emerging as key regulatory proteins with great promise as therapeutic agents for bone disorders. Here we show that Sost and its paralog Sostdc1 emerged through ancestral genome duplication and their expression patterns have diverged to delineate non-overlapping domains in most organ systems including musculoskeletal, cardiovascular, nervous, digestive, reproductive and respiratory. In the developing limb, Sost and Sostdc1 display dynamic expression patterns with Sost being restricted to the distal ectoderm and Sostdc1 to the proximal ectoderm and the mesenchyme. While Sostdc1(-/-) mice lack any obvious limb or skeletal defects, Sost(-/-) mice recapitulate the hand defects described for Sclerosteosis patients. However, elevated WNT signaling in Sost(-/-); Sostdc1(-/-) mice causes misregulation of SHH signaling, ectopic activation of Sox9 in the digit 1 field and preaxial polydactyly in a Gli1- and Gli3-dependent manner. In addition, we show that the syndactyly documented in Sclerosteosis is present in both Sost(-/-) and Sost(-/-); Sostdc1(-/-) mice, and is driven by misregulation of Fgf8 in the AER, a region lacking Sost and Sostdc1 expression. This study highlights the complexity of WNT signaling in skeletal biology and disease and emphasizes how redundant mechanism and non-cell autonomous effects can synergize to unveil new intricate phenotypes caused by elevated WNT signaling.