We developed a novel strategy based on in vitro DNA transposition of phage Mu to construct vectors for "knock-in" of the gene encoding Cre recombinase into endogenous loci in embryonic stem cells. This strategy was used to introduce Cre into the mouse Meox1 locus, which was expected to drive Cre expression in the presomitic and somitic mesoderm. In embryos heterozygous for both Meox1(Cre) and R26R or Z/AP reporter alleles, specific and efficient recombination of the reporter alleles was detected in the maturing somites and their derivatives, including developing vertebrae, skeletal muscle, back dermis, as well as endothelium of the blood vessels invading the spinal cord and developing limbs. In contrast to the somitic mesoderm, Cre activity was not observed in the cranial paraxial mesoderm. Thus, the Meox1(Cre) allele allows detailed fate-mapping of Meox1-expressing tissues, including derivatives of the somitic mesoderm. We used it to demonstrate dynamic changes in the composition of the mesenchyme surrounding the developing inner ear. Meox1(Cre) may also be used for tissue-specific mutagenesis in the somitic mesoderm and its derivatives.