The homeobox gene Otx2 is expressed in the anterior neural tube with a sharp limit at the midbrain/hindbrain junction (the isthmic organizer). Otx2 inactivation experiments have shown that this gene is essential for the development of its expression domain. Here we investigate whether the caudal limit of Otx2 expression is instrumental in positioning the isthmic organizer and in specifying midbrain versus hindbrain fate, by ectopically expressing Otx2 in the presumptive anterior hindbrain using a knock-in strategy into the En1 locus. Transgenic offspring display a cerebellar ataxia. Morphological and histological studies of adult transgenic brains reveal that most of the anterior cerebellar vermis is missing, whereas the inferior colliculus is complementarily enlarged. During early neural pattern formation expression of the midbrain markers Wnt1 and Ephrin-A5, the isthmic organizer markers Pax2 and Fgf-8 and the hindbrain marker Gbx2 are shifted caudally in the presumptive hindbrain territory. These findings show that the caudal limit of Otx2 expression is sufficient for positioning the isthmic organizer and encoding caudal midbrain fate within the mid/hindbrain domain.