We identified a homeobox-containing gene, Prx-1, isolated from the chick limb bud cDNA library. The homeodomain sequence is related to Drosophila paired and goose-berry and mouse Pax-3, Pax-6, and Pax-7. The deduced amino acid sequence of the Prx-1 gene product reveals the absence of a paired-box sequence and extensive similarity to mouse S8 and MHox homeodomain proteins, thus constituting a new class of homeobox gene. Using an in situ hybridization method, the Prx-1 gene is shown to be expressed predominantly in the limb bud and visceral arches. At early stages of limb development, distal mesodermal cells express the homeobox gene with an apparent gradient along the proximal-distal axis. The signal is absent in the apical and nonridge ectoderm. Removal of the apical ectodermal ridge had no apparent effect on the subsequent expression of Prx-1 in the limb mesenchyme. The Prx-1-expressing cells are later confined to the interdigital and perichondrial regions. The Prx-1 transcripts are also detectable in the mesenchyme of the visceral arches and facial primordia subjacent to the ectoderm. The Prx-1 gene is weakly expressed in somites and condensing vertebrae. No signal is detectable in neural tube and ectodermal epithelium. These results suggest that the Prx-1 homeodomain protein is involved in the differentiation of bone, muscle, and other tissues of mesodermal origin during limb development.