The mouse Bapx1 gene is homologous to the Drosophila homeobox containing bagpipe (bap) gene. A shared characteristic of the genes in these two organisms is expression in gut mesoderm. In Drosophila, bap functions to specify the formation of the musculature of the midgut. To determine the function of the mammalian cognate, we targeted a mutation into the Bapx1 locus. Bapx1, similar to Drosophila, does have a conspicuous role in gut mesoderm; however, this appears to be restricted to development of the spleen. In addition, Bapx1 has a major role in the development of the axial skeleton. Loss of Bapx1 affects the distribution of sclerotomal cells, markedly reducing the number that appear ventromedially around the notochord. Subsequently, the structures in the midaxial region, the intervertebral discs, and centra of the vertebral bodies, fail to form. Abnormalities are also found in those bones of the basal skull (basioccipital and basisphenoid bones) associated with the notochord. We postulate that Bapx1 confers the capacity of cells to interact with the notochord, effecting inductive interactions essential for development of the vertebral column and chondrocranium.