In trees, wood is produced from the vascular cambium. However, little is known about how differentiation of the cambial derivatives is controlled at the molecular level. Hybrid aspen, Populus tremula x tremuloides, is a fast-growing, wood-forming plant from which an efficient transformation and regeneration protocol has been developed. We use this species as a model to study xylem cell differentiation. In a cross-section of the stem, cells in the cambial region at different stages of development can be seen in a radial distribution. We dissected out the cambial region and constructed a cDNA-library from this tissue. The library was screened with a degenerated primer mix complementary to the third helix region of the homeobox. A number of cDNAs hybridising to the probe were isolated, purified, cloned and sequenced. Characterisation of the expression pattern of two such homeobox cDNAs revealed that one of the cDNAs, denoted PttHB1, was specifically expressed in the xylem maturation zone, indicating a role in the regulation of secondary wall formation, while the other, denoted PttHB2 was expressed in differentiating xylem and phloem cells. Structurally, the two hybrid aspen homeobox genes are homologous to each other, but no close relationship could be identified between these genes and any other homeobox sequence described thus far, in plants or other eukaryotes. We therefore conclude that the PttHB1 and PttHB2 genes belong to a novel hitherto undescribed sequence class of homeobox genes. We designate this as PALE.