The liguleless-1 (lg1) gene affects maize leaf development. In a normal maize leaf, a ligule and auricles separate the blade and sheath. The recessive lg1 mutation prevents formation of ligules and auricles during leaf development. To determine the timing and site of lg1 gene action, we compared development of wild-type and lg1 mutant leaves, and analyzed genetic mosaics composed of wild-type and lg1 mutant cells. In wild-type leaves the first sign of differentiation of the ligular region is a series of specialized anticlinal divisions in the adaxial epidermis. This establishes a distinct band of cells, from which the ligule arises via periclinal divisions. The anticlinal divisions preceding ligule formation are altered in the mutant; therefore, the gene acts early in development, before the periclinal divisions, and possibly during basipetal vascularization. Genetic mosaic analysis indicates that the lg1 gene has at least two functions with different tissue specificities: The Lg1+ wild-type allele acts autonomously in the adaxial epidermis for normal ligule development, and in internal tissues for auricle formation. Wild-type internal tissue in direct contact with lg1 epidermis appears able to induce the mutant epidermis to form a rudimentary ligule. The results indicate that the lg1 gene acts tissue specifically in an early step of ligule and auricle initiation.