Neural crest cells are multipotential progenitors that contribute to various cell and tissue types during embryogenesis. Here, we have investigated the molecular and cellular mechanism by which the fate of neural crest cell is regulated during tooth development. Using a two- component genetic system for indelibly marking the progeny of neural crest cells, we provide in vivo evidence of a deficiency of CNC-derived dental mesenchyme in Msx1 null mutant mouse embryos. The deficiency of the CNC results from an elevated CDK inhibitor p19(INK4d) activity and the disruption of cell proliferation. Interestingly, in the absence of Msx1, the CNC-derived dental mesenchyme misdifferentiates and possesses properties consistent with a neuronal fate, possibly through a default mechanism. Attenuation of p19(INK4d) in Msx1 null mutant mandibular explants restores mitotic activity in the dental mesenchyme, demonstrating the functional significance of Msx1-mediated p19(INK4d) expression in regulating CNC cell proliferation during odontogenesis. Collectively, our results demonstrate that homeobox gene Msx1 regulates the fate of CNC cells by controlling the progression of the cell cycle. Genetic mutation of Msx1 may alternatively instruct the fate of these progenitor cells during craniofacial development.