In the embryonic brain, the transcription factor Nkx2.1 is localized in the medial ganglionic eminence and the ventromedial part of the hypothalamus. In the present study, we examined the development of mesencephalic dopamine (DA) neuron system in mice lacking Nkx2.1. In normal mice, tyrosine hydroxylase-immunoreactive axons from mesencephalic DA cells extended bilaterally in the lateral hypothalamus at embryonic day 12.5 (E12.5) and project to the ipsilateral striatum by E14.5. In the mutant brain, mesencephalic DA cell groups appeared to develop normally, but the majority of their ascending axons were observed to cross the ventral midline of the caudal hypothalamus and project to the contralateral striatum. DiI, a fluorescent dye, placed in the ventrolateral mesencephalon of E14.5 mutant mice, further revealed that majority of DiI-labeled axons projected to the contralateral striatum, while a minor ipsilateral projection was also observed. In the ventromedial hypothalamus of mutants, the neuroepithelium of third ventricle was missing, and immunoreactivity of semaphorin 3A, a soluble type of axon repellent, which was normally localized in the neuroepithelium, was remarkably reduced. Together with the recent evidence that the expression of slit2, another axon-repellent diffusible factor, is also eliminated in the hypothalamic neuroepithelium of Nkx2.1-deficient mice, the abnormal crossing of ascending DA axons observed may be attributed to the elimination of these chemorepulsive signals in the medial part of the mutant hypothalamus.