We have isolated Msx3, the third member of the murine Msx homeobox gene family which is homologous to the msh gene of Drosophila. The Msx3 cDNA encodes a protein of 204 amino acids which has striking regions of homology in addition to the homeodomain when compared to the other Msx family members. Msx3 maps to the distal end of mouse chromosome 7, thus it is unlinked to either Msx1 or Msx2. RNA in situ analysis of Msx3 gene expression during early development revealed that it is restricted to the dorsal portion of the neural tube with a rostral boundary in the rostral rhombencephalon. This sole expression domain for Msx3 overlaps with both Msx1 and Msx2 at early stages, but in older embryos, Msx3 expression becomes restricted to the ventricular zone of the dorsal neural tube, whereas Msx1 and Msx2 become localized to the non-neuronal roof plate region. The absence of detectable levels of Msx3 expression outside this restricted dorsal region of the developing central nervous system (CNS) is in marked contrast to Msx1 and Msx2, which have extensive expression domains in other embryonic tissues, particularly craniofacial structures and the limbs. By analogy with the expression of msh/Msx genes in other organisms, it is likely that one of the ancestral functions of the msh/Msx gene family is in patterning of the CNS.