Dlx2, a member of the distal-less gene family, is expressed in the first branchial arch, prior to the initiation of tooth development, in distinct, non-overlapping domains in the mesenchyme and the epithelium. In the mesenchyme Dlx2 is expressed proximally, whereas in oral epithelium it is expressed distally. Dlx2 has been shown to be involved in the patterning of the murine dentition, since loss of function of Dlx1 and Dlx2 results in early failure of development of upper molar teeth. We have investigated the regulation of Dlx2 expression to determine how the early epithelial and mesenchymal expression boundaries are maintained, to help to understand the role of these distinct expression domains in patterning of the dentition. Transgenic mice produced with a lacZ reporter construct, containing 3.8 kb upstream sequence of Dlx2, led to the mapping of regulatory regions driving epithelial but not mesenchymal expression in the first branchial arch. We show that the epithelial expression of Dlx2 is regulated by planar signalling by BMP4, which is coexpressed in distal oral epithelium. Mesenchymal expression is regulated by a different mechanism involving FGF8, which is expressed in the overlying epithelium. FGF8 also inhibits expression of Dlx2 in the epithelium by a signalling pathway that requires the mesenchyme. Thus, the signalling molecules BMP4 and FGF8 provide the mechanism for maintaining the strict epithelial and mesenchymal expression domains of Dlx2 in the first arch.