Neural tube defects (NTD) are clinically important congenital malformations whose molecular mechanisms are poorly understood. The loop-tail (Lp) mutant mouse provides a model for the most severe NTD, craniorachischisis, in which the brain and spinal cord remain open. During a positional cloning approach, we have identified a mutation in a novel gene, Lpp1, in the Lp mouse, providing a strong candidate for the genetic causation of craniorachischisis in LP: Lpp1 encodes a protein of 521 amino acids, with four transmembrane domains related to the Drosophila protein strabismus/van gogh (vang). The human orthologue, LPP1, shares 89% identity with the mouse gene at the nucleotide level and 99% identity at the amino acid level. Lpp1 is expressed in the ventral part of the developing neural tube, but is excluded from the floor plate where Sonic hedgehog (Shh) is expressed. Embryos lacking Shh express Lpp1 throughout the ventral neural tube, suggesting negative regulation of Lpp1 by SHH: Our findings suggest that the mutual interaction between Lpp1 and Shh may define the lateral boundary of floor plate differentiation. Loss of Lpp1 function disrupts neurulation by permitting more extensive floor plate induction by Shh, thereby inhibiting midline bending of the neural plate during initiation of neurulation.