Pax1 is a transcriptional regulatory protein expressed during mouse embryogenesis and has been shown to have an important function in vertebral column development. Expression of Pax1 mRNA in the embryonic thymus has been reported previously. Here we show that Pax1 protein expression in thymic epithelial cells can be detected throughout thymic development and in the adult. Expression starts in the early endodermal epithelium lining the foregut region and includes the epithelium of the third pharyngeal pouch, a structure giving rise to part of the thymus epithelium. In early stages of thymus development a large proportion of thymus cells expresses Pax1. With increasing age, the proportion of Pax1-expressing cells is reduced and in the adult mouse only a small fraction of cortical thymic stromal cells retains strong Pax1 expression. Expression of Pax1 in thymus epithelium is necessary for establishing the thymus microenvironment required for normal T cell maturation. Mutations in the Pax-1 gene in undulated mice affect not only the total size of the thymus but also the maturation of thymocytes. The number of thymocytes is reduced about 2- to 5-fold, affecting mainly the CD4+8+ immature and CD4+ mature thymocyte subsets. The expression levels of major thymocyte surface markers remains unchanged with the exception of Thy-1 which was found to be expressed at 3- to 4-fold higher levels.