Members of the Class III homeodomain leucine zipper (Class III HD-Zip) gene family are central regulators of crucial aspects of plant development. To better understand the roles of five Class III HD-Zip genes in rice (Oryza sativa) development, we investigated their expression patterns, ectopic expression phenotypes, and auxin responsiveness. Four genes, OSHB1 to OSHB4, were expressed in a localized domain of the shoot apical meristem (SAM), the adaxial cells of leaf primordia, the leaf margins, and the xylem tissue of vascular bundles. In contrast, expression of OSHB5 was observed only in phloem tissue. Plants ectopically expressing microRNA166-resistant versions of the OSHB3 gene exhibited severe defects, including the ectopic production of leaf margins, shoots, and radialized leaves. The treatment of seedlings with auxin quickly induced ectopic OSHB3 expression in the entire region of the SAM, but not in other tissues. Furthermore, this ectopic expression of OSHB3 was correlated with leaf initiation defects. Our findings suggest that rice Class III HD-Zip genes have conserved functions with their homologs in Arabidopsis (Arabidopsis thaliana), but have also acquired specific developmental roles in grasses or monocots. In addition, some Class III HD-Zip genes may regulate the leaf initiation process in the SAM in an auxin-dependent manner.