The establishment of neural circuits in the spinal cord depends on the differentiation of functionally distinct types of neurons in the embryonic neural tube. A number of genes have recently been shown to control the generation of dorsal interneurons through inductive signals provided by the roof plate. The roof plate is a transient signaling center on the dorsal midline of the neural tube that coordinates dorsal CNS development through the action of local peptide signals, primarily the bone morphogenic proteins (BMPs) and the Wingless-related genes (Wnts). The role of the roof plate has become evident through studies of mutations of genes in these gene families, and through several spontaneously occurring mouse mutants, including dreher(J) (dr(J)), all of which cause dorsal neural tube defects. We previously demonstrated that the roof plate is missing in the dreher mouse. Positional cloning of the dreher locus demonstrated that an inactivating point mutation in the LIM homeodomain (HD) transcription factor encoded by the Lmx1a gene, is responsible for the dreher(J) phenotype [Nature, 403 (2000) 764]. Here we report that Lmx1a is first expressed at E8.5 in a small number of cells in the lateral neural plate. As the neural tube closes, Lmx1a expression is restricted to the roof plate. In dr(J)/dr(J), although non-functional Lmx1a is correctly expressed at E8.5-E9.5, its expression is lost in the spinal cord roof plate by E10.5. Coincident with the loss of Lmx1a expression, Bmp expression fails, and the generation and differentiation of the dorsal-most spinal cord neurons, the dl1 interneurons, is abnormal. In dr(J)/dr(J) embryos, defects are evident in the number of dl1 progenitors, as well as in their migration to form the lateral and medial nuclei, and axon patterning, through mechanisms that apparently involve defects in early steps of neuronal polarity. Consistent with the general hypothesis that a failure of roof plate formation and function results in deficits in dorsal patterning of the neural tube, the dreher affects the generation and differentiation of the dl1 interneuron population.