Expression of Pax-2 in the mouse gastrula is the first marker of the midbrain-hindbrain region. To address roles played by transcription factors in the process of neural plate pattern formation and to facilitate gain-of-function approaches in the study of midbrain-hindbrain and cerebellar development, we characterized regulatory sequences at the Pax-2 locus using an in vivo transgenic mouse reporter assay. An 8.5 kb fragment of genomic DNA located upstream of Pax-2 directed lacZ expression prior to neurulation (7.5 days post-coitum, dpc) in a region fated to become midbrain and hindbrain, and subsequently in developing neuroepithelium. While similar to the pattern of Pax-2 expression, reporter gene activity extended beyond the boundaries of Pax-2 expression, most probably reflecting purdurance of beta-galactosidase activity and an absence of DNA sequences that restrict Pax-2 expression to rhombomere 1 by 9. 5 dpc. In the fetal and neonatal brain, Pax-2-lacZ activity was confined largely to Purkinje cells and the external granule cell layer (EGL) of the cerebellum. A 4 kb regulatory element, in contrast, initiated neural expression at 8.25 dpc in the anterior hindbrain, but recapitulated all later aspects of Pax-2-lacZ activity observed with the larger transgene. These results indicate the presence of regulatory sequences upstream of the Pax-2 locus capable of directing gene expression in the developing midbrain, first rhombomere of the hindbrain, and its principal derivative, the cerebellum. Successful misexpression of Sonic hedgehog demonstrates that Pax-2 regulatory sequences should prove generally useful for transgenic gain-of-function approaches in mice.