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Pax6 is a member of the Pax gene family of transcriptional regulators that exhibits a restricted spatiotemporal expression in the developing central nervous system, eye and nose. Mutations in Pax6 are responsible for inherited malformations in man, rat and mouse. To evaluate the role of Pax6 in forebrain development, we studied in detail mouse Small eye/Pax6 mutant brains. This analysis revealed severe defects in forebrain regions where Pax6 is specifically expressed. The establishment of some expression boundaries along the dorsoventral axis of the secondary prosencephalon is distorted and the specification of several ventral structures and nuclei is abolished. Specifically, the development of the hypothalamo-telencephalic transition zone and the ventral thalamus is distorted. Our detailed analysis included a comparison of the expression of Pax6, Dlx1 and several other genes during embryonic mouse brain development in wild-type and in the mutant Small eye (Sey) brain. The results from the analysis of normal brain development show that the restricted expression of Pax6 and Dlx1 at E12.5 dpc respect domains within the forebrain, consistent with the implications of the prosomeric model for the organisation of the forebrain (L. Puelles and J. L. R. Rubenstein (1993) Trends Neurosci. 16, 472-479). Furthermore, we found an early restriction of Pax6 and Dlx1 expression into presumptive histogenetic fields that correlate with the formation of distinct forebrain structures and nuclei. Our results are discussed in light of changes in adhesive properties in the Sey brain that might control segregation, assembly and cell migration of progenitors of specific forebrain regions.