Extracellular matrix (ECM) molecules, such as laminin, tenascin, chondroitin sulphate proteoglycans and heparan sulphate proteoglycans have been suggested to have 'signpost' and directing roles in the formation of axonal projections in cortical development. We show here that the expression of the neurite outgrowth-promoting protein heparin-binding growth-associated molecule (HB-GAM) and N-syndecan, a transmembrane heparan sulphate proteoglycan previously isolated as a receptor for HB-GAM, is spatiotemporally associated with the developing thalamocortical pathway in the rat brain. Using in situ hybridization, thalamic neurons were shown to express mRNA for N-syndecan, and in vitro, thalamic neurons grew more neurites on HB-GAM than on laminin. The HB-GAM-induced neurite outgrowth in thalamic neurons was inhibited by heparitinase, heparin, soluble N-syndecan and by an excess of soluble HB-GAM in the culture medium. In a pathway assay, thalamic neurons selectively preferred attaching and growing neurites on matrices containing HB-GAM than on those containing fibronectin or laminin alone, suggesting that HB-GAM may modulate the effect of other ECM proteins. On an unfixed brain slice preparation, thalamic neurons repeatedly showed a typical neurite outgrowth and attachment pattern resembling the expression pattern of HB-GAM. On the brain slices, the neurite outgrowth was significantly inhibited by heparitinase, heparin and soluble HB-GAM, thus displaying features of neurite outgrowth on matrix-bound HB-GAM. Our results suggest that HB-GAM is important for the neurite outgrowth of thalamic neurons and it may function as an ECM-bound guidance cue for thalamic neurons that possess HB-GAM-binding heparan sulphates on their cell membrane.