To develop in vivo assays for homeobox gene function in neural development, we generated transgenic mice in which the expression of a homeobox gene is altered only within the nervous system, in neurons or neuronal precursor cells. Transgenic expression of Hoxc8 did not result in gross abnormalities, while a Hoxd4 transgene caused death shortly after birth. In neural progenitor cells, the motorneuron-specific homeodomain transcription factor Isl1 induced early developmental defects, including absence of anterior neural structures, profound defects in the neuroepithelium and defective neural tube closure. A fraction of Isl1 transgenic mice exhibited spina bifida. Isl1 transgene expression was also associated with decreased proliferation and increased Pbx1 expression in the ventral neural tube. Our results suggest a function for some homeobox genes in development of the nervous system, and that cell-type- and region-specific transgenic models will be useful to identify the cellular and molecular targets of homeobox transcription factors in nervous system development.