The fate of the palatal medial edge epithelial (MEE) cells undergoes programming cell death, migration, and epithelial-mesenchymal transdifferentiation (EMT) coincident with the process of palatal fusion and disappearance of MEE. Mesenchymal cells in the palate have both cranial neural crest (CNC) and non-CNC origins. The objectives of this study were to identify the populations of palatal mesenchymal cells using β-galactosidase (β-gal) and DiI cell lineage markers, and to determine whether MEE-derived cells continued to express transforming growth factor-β3 (TGF-β3) and transforming growth factor-β type III receptor (TβR-III), which were specific for MEE. A model has been developed using Wnt1 tissue specific expression of Cre-recombinase to activate β-gal solely in the CNC. The expressions of TGF-β3 and TβR-III in MEE were temporally correlated with critical events in palatogenesis. Three cell populations could be distinguished in the palatal mesenchymal CNC-derived, non-CNC derived and MEE-derived. After fusion, β-gal⁻ and DiI+ mesenchymal cells continued to express TGF-β3, however TβR-III was expressed only in the epithelial MEE, as well as keratin expression. In addition, we performed laser capture microdissection to identify mRNA expression of isolated DiI+ MEE cells. Both epithelial and transdifferentiated MEE have expressed TGF-β3, however, TβR-III was only expressed in epithelium. Extracellular matrix, especially MMP13 has been expressed coincident with fused stage which can be strongly associated with TGF-β3. These results demonstrate that combining a heritable marker and a cell lineage dye can distinguish different populations of mesenchymal cells in the developing palate. Furthermore, TGF-β3 and MMP13 could be strongly associated with EMT in palatogenesis.