The paired-related homeobox gene, prx-1, is expressed in the postmigratory cranial mesenchyme of all facial prominences and is required for the formation of proximal first arch derivatives. We introduced lacZ into the prx-1 locus to study the developmental fate of cells destined to express prx-1 in the prx-1 mutant background. lacZ was normally expressed in prx-1(neo); prx-1(lacZ )mutant craniofacial mesenchyme up until 11.5 d.p.c. At later time points, lacZ expression was lost from structures that are defective in the prx-1(neo) mutant mice. A related gene, prx-2, demonstrated overlapping expression with prx-1. To test the idea that prx-1 and prx-2 perform redundant functions, we generated prx-1(neo;)prx-2 compound mutant mice. Double mutant mice had novel phenotypes in which the rostral aspect of the mandible was defective, the mandibular incisor arrested as a single, bud-stage tooth germ and Meckel's cartilage was absent. Expression of two markers for tooth development, pax9 and patched, were downregulated. Using a transgene that marks a subset of prx-1-expressing cells in the craniofacial mesenchyme, we showed that cells within the hyoid arch take on the properties of the first branchial arch. These data suggest that prx-1 and prx-2 coordinately regulate gene expression in cells that contribute to the distal aspects of the mandibular arch mesenchyme and that prx-1 and prx-2 play a role in the maintenance of cell fate within the craniofacial mesenchyme.