Initiating as protruding ridges above and below the optic vesicle, the eyelids of mice grow across the eye and temporarily fuse in fetal life. Mutations of a number of genes disrupt this developmental process and result in a birth defect, "open-eyelids at birth." Here we show that a critical event for eyelid induction occurs at embryonic day 11.5 (E11.5) when the single cell-layered ectoderm in the presumptive eyelid territory increases proliferation and undergoes morphologic transition to form cube-shaped epithelial cells. Using embryos lacking the Fgfr2 Ig domain III (Fgfr2 ⌬III/⌬III ) generated by tetraploid rescue and chimeric embryo formation approaches, we demonstrate that this event is controlled by Fgfr2 signals as the Fgfr2 ⌬III/⌬III mutation blocks these changes and results in embryos without eyelids. Fgfr2 and its ligands are differentially expressed in the ectoderm and underlying mesenchyme and function in a reciprocal interacting loop that specifies eyelid development. We also demonstrate that similar defects account for failure of skin formation at early stages. Interestingly, Fgfr2-independent skin formation occurs at E14.5 mutant embryos, resulting in much thinner, yet well-differentiated epidermis. Notably, mutant skin remains thin with decreased hair density after transplantation to wild-type recipients. These data demonstrate an essential role of Fgfr2 in eyelid and skin formation and patterning. Published 2001 Wiley-Liss, Inc. †