Cells in the caudal mesencephalon and rostral metencephalon become organized by signals emanating from the isthmus organizer (IsO). The IsO is associated with the isthmus, a morphological constriction of the neural tube which eventually defines the mesencephalic/ metencephalic boundary (MMB). Here we report that the transcription factor Lmx1b is expressed and functions in a distinct region of the IsO. Lmx1b expression is maintained by the glycoprotein Fgf8, a signal capable of mediating IsO signaling. Lmx1b, in turn, maintains the expression of the secreted factor Wnt1. Our conclusions are substantiated by the following: (i) Lmx1b mRNA becomes localized to the isthmus immediately after Fgf8 initiation, (ii) Wnt1 expression is localized to the Lmx1b expression domain, but with slightly later kinetics, (iii) Fgf8-soaked beads generate similar domains of expression for Lmx1b and Wnt1 and (iv) retroviral-mediated expression of Lmx1b (Lmx1b/RCAS) maintains Wnt1 expression in the mesencephalon. Ectopic Lmx1b is insufficient to alter the expression of a number of other genes expressed at the IsO, suggesting that it does not generate a new signaling center. Instead, if we allow Lmx1b/RCAS-infected brains to develop longer, we detect changes in mesencephalic morphology. Since both ectopic and endogenous Lmx1b expression occurs in regions of the isthmus undergoing morphological changes, it could normally play a role in this process. Furthermore, a similar phenotype is not observed in Wnt1/RCAS-infected brains, demonstrating that ectopic Wnt1 is insufficient to mediate the effect of ectopic Lmx1b in our assay. Since Wnt1 function has been linked to the proper segregation of mesencephalic and metencephalic cells, we suggest that Lmx1b and Wnt1 normally function in concert to affect IsO morphogenesis.