Otx2 expression in the forebrain and midbrain was found to be regulated by two distinct enhancers (FM and FM2) located at 75 kb 5' upstream and 115 kb 3' downstream. The activities of these two enhancers were absent in anterior neuroectoderm earlier than E8.0; however, at E9.5 their regions of activity spanned the entire mesencephalon and diencephalon with their caudal limits at the boundary with the metencephalon or isthmus. In telencephalon, activities were found only in the dorsomedial aspect. Potential binding sites of OTX and TCF were essential to FM activity, and TCF sites were also essential to FM2 activity. The FM2 enhancer appears to be unique to rodent; however, the FM enhancer region is deeply conserved in gnathostomes. Studies of mutants lacking FM or FM2 enhancer demonstrated that these enhancers indeed regulate Otx2 expression in forebrain and midbrain. Development of mesencephalic and diencephalic regions was differentially regulated in a dose-dependent manner by the cooperation between Otx1 and Otx2 under FM and FM2 enhancers: the more caudal the structure the higher the OTX dose requirement. At E10.5 Otx1-/-Otx2DeltaFM/DeltaFM mutants, in which Otx2 expression under the FM2 enhancer remained, exhibited almost complete loss of the entire diencephalon and mesencephalon; the telencephalon did, however, develop.