Prospero-related homeobox genes have been identified from various multi-cellular organisms and play important roles in development as a cell fate determinant. Mouse Prox1 is essential for embryogenesis and is required to differentiate horizontal cells in the retina. Here we describe a novel prospero family member, Prox2. Transcriptional reporter assays demonstrated that mouse Prox2 is a transcriptional activator and the N-terminal region has been identified as an activation domain. The expression of mouse Prox2 was detected in postnatal eyes and adult testes as well as embryos. To investigate the in vivo role of Prox2, we generated the Prox2 mutant allele, Prox2-, by homologous recombination in mouse ES cells. Prox2- lacks the first coding exon that encodes a translational start site and a part of homeodomain. In spite of the Prox2 expression during embryogenesis, Prox2- homozygous mutant mice were born at the expected Mendelian ratio without overt abnormalities. Histological analyses revealed that Prox2- homozygous eyes retained the organized layer structure including three nuclear layers and differentiated horizontal cells. Prox2- homozygous mutant males produced elongated spermatids and were fertile. These results demonstrate that mouse Prox2 is dispensable for embryonic development, horizontal cell generation and fertility in contrast to mouse Prox1.