Pax and homeodomain transcription factors are essential for the formation of an organizing center at the midbrain-hindbrain boundary (mhb) which controls the genesis of the midbrain and cerebellum in the vertebrate embryo. Pax2 and Pax5 are sequentially activated in this brain region, with Pax2 expression preceding that of Pax5. Using a transgenic reporter assay, we have now identified a conserved 435 bp enhancer in the 5′ flanking region of mammalian Pax5 genes which directs lacZ expression in the correct temporal and spatial pattern at the mhb. This minimal enhancer is composed of two distinct elements, as shown by protein-binding assays with mhb-specific extracts. The proximal element contains overlapping consensus binding sites for members of the Pax2/5/8 and POU protein families, whereas a distal element is bound by homeodomain and zinc finger transcription factors. Expression analysis of transgenes carrying specific mutations in these recognition motifs identified the Pax- and homeodomain-binding sites as functional elements which cooperatively control the activity of the mhb enhancer. lacZ genes under the control of either the minimal enhancer or the endogenous Pax5 locus were normally expressed at the mhb in Pax5 mutant embryos, indicating that this enhancer does not depend on autoregulation by Pax5. In Pax2 mutant embryos, expression of the endogenous Pax5 gene was, however, delayed and severely reduced in lateral aspects of the neural plate which, on neural tube closure, becomes the dorsal mhb region. This cross-regulation by Pax2 is mediated by the Pax-binding site of the minimal enhancer which, upon specific mutation, resulted in severely reduced transgene expression in the dorsal part of the mhb. Together these data indicate that Pax2 and homeodomain proteins directly bind to and cooperatively regulate the mhb enhancer of Pax5.