Mice homozygous for a targeted deletion of the homeobox gene Goosecoid (Gsc) have multiple craniofacial defects. To understand the mechanisms responsible for these defects, the behavior of Gsc-null cells was examined in morula aggregation chimeras. In these chimeras, Gsc-null cells were marked with beta-galactosidase (beta-gal) activity using the ROSA26 lacZ allele. In addition, mice with a lacZ gene that had been introduced into the Gsc locus were used as a guide to visualize the location of Gsc-expressing cells. In Gsc-null<->wild-type chimeras, tissues that would normally not express Gsc were composed of both Gsc-null and wild-type cells that were well mixed, reflecting the overall genotypic composition of the chimeras. However, craniofacial tissues that would normally express Gsc were essentially devoid of Gsc-null cells. Furthermore, the nasal capsules and mandibles of the chimeras had defects similar to Gsc-null mice that varied in severity depending upon the proportion of Gsc-null cells. These results combined with the analysis of Gsc-null mice suggest that Gsc functions cell autonomously in mesenchyme-derived tissues of the head. A developmental analysis of the tympanic ring bone, a bone that is always absent in Gsc-null mice because of defects at the cell condensation stage, showed that Gsc-null cells had the capacity to form the tympanic ring condensation in the presence of wild-type cells. However, analysis of the tympanic ring bones of 18.5 d.p.c. chimeras suggests that Gsc-null cells were not maintained. The participation of Gsc-null cells in the tympanic ring condensation of chimeras may be an epigenetic phenomenon that results in a local environment in which more precursor cells are present. Thus, the skeletal defects observed in Gsc-null mice may reflect a regional reduction of precursor cells during embryonic development.