The role of neurotrophin-3 (NT3) during sensory neuron development was investigated in transgenic mice overexpressing NT3 under the control of the promoter and enhancer regions of the nestin gene, an intermediate filament gene widely expressed in the developing nervous system. Most of these mice died during the first postnatal day, and all showed severe limb ataxia suggestive of limb proprioceptive dysfunction. Tracing and histological analyses revealed a complete loss of spindles in limb muscles, absence of peripheral and central Ia projections, and lack of cells immunoreactive to parvalbumin in the dorsal root ganglion (DRG). Despite these deficits, there was no neuronal loss in the DRG of these mice. At birth, transgenic DRG showed increased neuron numbers, and displayed a normal proportion of neurons expressing substance P, calcitonin gene-related peptide and the NT3 receptor trkC. Transgenic dorsal roots exhibited an increased number of axons at birth, indicating that all sensory neurons in transgenic mice projected to the dorsal spinal cord. Despite the absence of central Ia afferents reaching motorneurons, several sensory fibers were seen projecting towards ectopic high levels of NT3 in the midline of transgenic spinal cords. These findings suggest novel roles for NT3 in differentiation of proprioceptive neurons, target invasion and formation of Ia projections which are independent from its effects on neuronal survival.