The development of complex organs composed of different cell types frequently depends on reciprocal induction events occurring between distinct tissue layers that lie adjacent to one another in the embryo. The pituitary is a well studied case in point. It originates from two ectoderm-derived tissues, with the posterior lobe developing from an evagination of the ventral diencephalon, the infundibulum, and the intermediate and anterior lobes deriving from Rathke's pouch, an invaginating domain in the roof of the oral ectoderm 1 . In the mature gland, the posterior lobe contains axon terminal projections from two populations of hypothalamic neuroendocrine neurons. The anterior and intermediate lobes contain several different endocrine cell types whose proliferation, hormone synthesis and secretion are regulated by factors secreted from hypothalamic neuroendocrine neurons.During early development the infundibulum has an inductive role in the formation of the pituitary. For example, the genetic ablation of this domain in Titf1-null mice results in the complete absence of the pituitary gland 2 . The essential signaling molecules made by the infundibulum are thought to be FGF8 and BMP4, as both are necessary to induce early development of Rathke's pouch. FGF and BMP signals are also required to control the pattern of differentiation of cell types derived from Rathke's pouch 3,4 .Even subtle mutations that affect signaling pathways during early organogenesis can have profound effects on subsequent development and specification of mature cell types. These could arise in genes encoding the signaling molecules or their receptors, in transcription factors responsible for their expression or in genes required to specify the interacting tissues. In humans, SOX3, an HMG box protein (for review see ref. 5), is implicated in a syndrome of X-linked hypopituitarism and mental retardation 6 . In a single family whose males were deficient in growth hormone, a mutation in SOX3 was identified. The consequences of this mutation on the function of the protein are not known. X-chromosome deletions encompassing SOX3 are linked to several syndromes in humans, including mental retardation, but defects in pituitary function have not been reported 7,8 .SOX3 is a single-exon gene on the X chromosome in all mammals and is thought to be the gene from which SRY, the Y-linked testis determining gene, evolved 9,10 . Based on sequence homology, however, SOX3 is more closely related to SOX1 and SOX2 (refs. 5,11). Together they comprise the SOXB1 subfamily and are coexpressed throughout the developing CNS [11][12][13] . To study the role of Sox3, we targeted null mutations in the gene into XY embryonic stem (ES) cells, but injection of these cells into blastocysts resulted in early lethality of the chimeras due to a gastrulation defect (M. Parsons, C. Wise, S.B., M. CohenTannoudji, K.R., L. Pevny & R.L.-B., unpublished data).Therefore, to access later functions of SOX3, we initiated experiments using a conditional targeting strategy. In contrast to th...