Pax-6 is one of the earliest regulatory genes to be expressed in the diencephalon. We tested whether normal Pax-6 protein is required for early diencephalic development by examining morphology, precursor proliferation and patterns of regulatory gene expression in the embryonic diencephalon of Small-eye mice (Pax-6 mutants). In Small-eye mice, diencephalic morphology was abnormal at all the embryonic ages studied (days 10.5, 12.5 and 14.5). Regional differences in diencephalic cell density were lost, the diencephalon/mesencephalon boundary was unclear and the third ventricle was enlarged. We estimated diencephalic proliferative rates after labelling with bromodeoxyuridine and found that they were abnormally low in mutants aged embryonic day 10.5. In older mutants, the diencephalon contained fewer cells than normal. In wild-type E14.5 diencephalon, Pax-6, Dlx-2 and Wnt-3 are expressed in discrete regions along the rostrocaudal and dorsoventral axes. In situ hybridizations for these genes in E14.5 Small-eye mice revealed discrete zones of diencephalic expression that had similar relative positions to those in wild-type mice. Some differences of detail in their expression were seen: Pax-6 had an expanded rostral domain of expression and an abnormally indistinct caudal boundary; Dlx-2 had a diffuse, rather than a sharp, caudal boundary of expression; the normally high dorsal midline expression of Wnt-3 was lost. We conclude that normal expression of Pax-6 is required for the correct regulation of diencephalic precursor proliferation. Pax-6 may also control some aspects of diencephalic differentiation, but its mutation in Small-eye mice does not preclude the development of a degree of diencephalic regionalization resembling that in normal mice.