Several mouse genes designated 'Pax genes' contain a highly conserved DNA sequence homologous to the paired box of Drosophila. Here we describe the isolation of Pax8, a novel paired box containing clone from an 8.5 day p.c. mouse embryo cDNA library. An open reading frame of 457 amino acids (aa) contains the 128 aa paired domain near the amino terminus. Another conserved region present in some other paired box genes, the octapeptide Tyr-Ser-Ile-Asn-Gly-Leu-Leu-Gly, is located 43 aa C-terminal to the paired domain. Using an interspecies backcross system, we have mapped the Pax8 gene within the proximal portion of mouse chromosome 2 in a close linkage to the surf locus. Several developmental mutations are located in this region. In situ hybridization was used to determine the pattern of Pax8 expression during mouse embryogenesis. Pax8 is expressed transiently between 11.5 and 12.5 days of gestation along the rostrocaudal axis extending from the myelencephalon throughout the length of the neural tube, predominantly in two parallel regions on either side of the basal plate. We also detected Pax8 expression in the developing thyroid gland beginning at 10.5 days of gestation, during the thyroid evagination. In the mesonephros and metanephros the expression of Pax8 was localized to the mesenchymal condensations, which are induced by the nephric duct and ureter, respectively. These condensations develop to functional units, the nephrons, of the kidney. These data are consistent with a role for Pax8 in the induction of kidney epithelium. The embryonic expression pattern of Pax8 is compared with that of Pax2, another recently described paired box gene expressed in the developing excretory system.