We have isolated Xbr-1, a novel Xenopus homeobox gene that defines a new class of homeobox genes, distantly related to the Drosophila BarH1 and BarH2 genes. Xbr-1 is predominantly expressed in the developing Xenopus eye, starting as early as the neural plate stage. At early stages of eye development XBR-1 is expressed in the eye vesicle dorsally, in the tissue between the prospective neural retina and pigment epithelium. Later, in the optic cup, it is restricted to the prospective dorsal ciliary margin, an area containing progenitor cells at the edge of retina. Comparing the expression of Xbr-1 in the eye to that of X-Notch-1 suggests that Xbr-1 marks a unique population of pluripotent stem cells within the dorsal ciliary margin. The expression of Xbr-1 and BMP-4 in the dorsal ciliary margin is largely coincident, suggesting that the two molecules interact. We propose that Xbr-1 and BMP-4 may play a role in the development of progenitor cells on the dorsal half of the eye and that they may be involved in the establishment of polarity of the eye along the dorsoventral axis.