We describe a method termed MADM (mosaic analysis with double markers) in mice that allows simultaneous labeling and gene knockout in clones of somatic cells or isolated single cells in vivo. Two reciprocally chimeric genes, each containing the N terminus of one marker and the C terminus of the other marker interrupted by a loxP-containing intron, are knocked in at identical locations on homologous chromosomes. Functional expression of markers requires Cre-mediated interchromosomal recombination. MADM reveals that interchromosomal recombination can be induced efficiently in vivo in both mitotic and postmitotic cells in all tissues examined. It can be used to create conditional knockouts in small populations of labeled cells, to determine cell lineage, and to trace neuronal connections. To illustrate the utility of MADM, we show that cerebellar granule cell progenitors are fated at an early stage to produce granule cells with axonal projections limited to specific sublayers of the cerebellar cortex.