The leukocyte common antigen-related (LAR) receptor, composed of an extracellular region with three immunoglobulin-like and eight fibronectin type III-like domains, and a cytoplasmic region containing two protein tyrosine phosphatase domains, is thought to play a role in axonal outgrowth and guidance during neural development. LAR mutant mice were generated completely lacking the two cytoplasmic protein tyrosine phosphatase domains, resulting in the loss of ability to bind intracellular associating proteins, but (may be) still containing the ability to perform extracellular functions. A reduction in size of basal forebrain cholinergic neurons and diminished hippocampal innervation reported for knockout mice that contain a leaky gene trap inserted into the 5' part of the LAR gene [Yeo T. T. et al. (1997) J. Neurosci. Res. 47, 348-360] warranted a computer-assisted quantitative image analysis throughout the basal forebrain and hippocampus of our LAR mutant mice. The total number, longest diameter and cell body area were calculated for the choline acetyltransferase-positive neurons in the medial septum and vertical diagonal band, and optical density measurements were performed to determine the extent of acetyl cholinesterase-positive fibre innervation of the different layers in the dentate gyrus. In LAR mutant mice, the number of cholinergic cells was significantly reduced (approximately 25%) in the vertical diagonal band. Also, the cross-sectional area of the cholinergic neurons in the medial septum and vertical diagonal band was reduced (5%). These findings were paralleled by a diminished cholinergic innervation of the supragranular (18%) and molecular (4%) layers of the dentate gyrus. Thus, LAR protein tyrosine phosphatase activity appears crucial for size, number and target projection of basal forebrain cholinergic neurons, further strengthening a role for LAR in CNS development.