The history of mouse genetics, which involves the study of strain-dependent phenotype variability, makes it clear that the genetic background onto which a gene-targeted allele is placed can cause considerable variation in genetically engineered mouse (GEM) phenotype. This variation can present itself as completely different phenotypes, as variations in penetrance of phenotype, or as variable expressivity of phenotype. In this chapter we provide examples from gene-targeting literature showing each of these types of phenotype variation. We discuss ways in which modifier genes can affect the phenotype of a mouse with a mutant gene, and we give examples of modifier locus identification. We also review approaches to minimize gene polymorphism and flanking gene differences between experimental animals, and between them and their controls. In addition, we discuss the advantages and disadvantages of performing the first analysis of a knockout mouse on a mixed genetic background. We conclude that a mixed background provides the quickest preview of possible strain-dependent phenotypes (1 , 2). Finally, we review recent approaches to improving genetic diversity by generating new inbred strains that encompass a broader range of alleles within the mouse species.