The rae28 gene is a mouse homologue of the Drosophila polyhomeotic gene (Nomura, M., Takihara, Y. and Shimada, K. (1994) Differentiation 57, 39-50), which is a member of the Polycomb group (Pc-G) of genes (DeCamillis, M., Cheng, N., Pierre, D. and Brock, H.W. (1992) Genes Dev. 6, 223-232). The Pc-G genes are required for the correct expression of the Homeotic complex genes and segment specification during Drosophila embryogenesis and larval development. To study the role of the rae28 gene in mouse development, we generated rae28-deficient mice by gene targeting in embryonic stem cells. The rae28-/- homozygous mice exhibited perinatal lethality, posterior skeletal transformations and defects in neural crest-related tissues, including ocular abnormalities, cleft palate, parathyroid and thymic hypoplasia and cardiac anomalies. The anterior boundaries of Hoxa-3, a-4, a-5, b-3, b-4 and d-4 expression were shifted rostrally in the paraxial mesoderm of the rae28-/- homozygous embryos, and those of Hoxb-3 and b-4 expression were also similarly altered in the rhombomeres and/or pharyngeal arches. These altered Hox codes were presumed to be correlated with the posterior skeletal transformations and neural crest defects observed in the rae28-/- homozygous mice. These results indicate that the rae28 gene is involved in the regulation of Hox gene expression and segment specification during paraxial mesoderm and neural crest development.