In a search for homeobox genes expressed during early Xenopus development, we have isolated a gene which appears to be the Xenopus cognate of the mouse Gbx-2 gene. Expression of Xgbx-2 is first detectable by in situ hybridization at the midgastrula stage when it is predominantly expressed in the dorsolateral ectoderm, with a gap in expression at the dorsal midline. By the end of gastrulation and during neurulation, Xgbx-2 is expressed dorsolaterally in the neural ectoderm and laterally and ventrally in the epidermis with sharp anterior expression borders in both tissues. The anteriormost expression in the neural ectoderm persists throughout the early stages of development, and was mapped to the region of rhombomere 1, with an anterior expression border in the region of the midbrain-hindbrain boundary. Thus Xgbx-2 is expressed anterior to the Hox genes. Xgbx-2 expression is induced by retinoic acid (RA) in animal caps, and RA treatment of whole embryos expands and enhances Xgbx-2 expression in the ectoderm. We suggest a role for Xgbx-2 in establishing the midbrain-hindbrain boundary, which appears to separate early neurectodermal regions expressing genes that are positively and negatively regulated by RA.