To clarify the role of muscle-derived neurotrophin-3 (NT-3) in the development of sensory neurons, we generated transgenic mice selectively overexpressing NT-3 in skeletal muscles under the control of a myogenin promoter (myo-NT-3 mice). The myo-NT-3 transgene was then bred into an NT-3 null mutant (-/-) line to generate myo-NT-3, NT-3(-/-) mice in which NT-3 was expressed in muscles, but not elsewhere. Transient overexpression of NT-3 in developing muscles increased the number of proprioceptive neurons as well as the density of both their central and peripheral projections, resulting in more Ia afferents in spinal cord and more spindles (end organs of Ia afferents) in muscles. NT-3 expression restricted to muscles was sufficient to secure the development of proprioceptive neurons and their central and peripheral projections in myo-NT-3, NT-3(-/-) mice. The loss of nonproprioceptive neurons observed in NT-3(-/-) mice was not reversed by the transgene, suggesting that these neurons are regulated by NT-3 from sources other than muscle. We conclude that target-derived rather than intraganglionic NT-3 is preeminent in supporting the development of proprioceptive neurons. The level of NT-3 in developing muscles may be the principal factor determining the number of proprioceptive neurons in dorsal root ganglions and spindles in skeletal muscles of adults.