During the development of the vertebrate head, cranial neural crest cells migrate into the branchial arches to form many of the structures of the facial skeleton. These cells follow defined developmental pathways and their fates are determined early. We have isolated and characterized the murine Distal-less homeobox gene Dlx-3 and have performed a comparative analysis of Dlx-3 and Dlx-2 expression during craniofacial development. In contrast to Dlx-2 and other vertebrate Distal-less genes, Dlx-3 is not expressed in the central nervous system and is expressed in a highly restricted region of the branchial arches. Dlx-2 and -3 display temporal and spatial differences in expression in the arches and their derivatives. In later development, these two genes are expressed in both complementary and partially overlapping domains in regions whose development is dependent on epithelial-mesenchymal interactions, such as the developing middle and inner ear, teeth and whisker follicles. The differential expression of Dlx genes in the branchial region suggests that they play key roles in craniofacial patterning and morphogenesis.