The homeodomain transcription factor Chx10 is one of the earliest markers of the developing retina. It is required for retinal progenitor cell proliferation as well as formation of bipolar cells, a type of retinal interneuron. orJ (ocular retardation) mice, which are Chx10 null mutants, are microphthalmic and show expanded and abnormal peripheral structures, including the ciliary body. We show here, in a mixed genetic background, the progressive appearance of pigmented cells in the neural retina, concomitant with loss of expression of retinal markers. Fate mapping analysis using a multifunctional Chx10 BAC reporter mouse revealed this process to be direct transdifferentiation of retinal cells into pigmented cells. Microarray and in situ hybridization analyses revealed a complex program underlying the transdifferentiation. This program involved the expansion of expression of genes normally found only in the periphery into central regions of the eye. These genes included a transcription factor controlling pigmentation, Mitf, and the related factor Tfec(Tcfec – Mouse Genome Informatics), which can activate a melanogenic gene expression program. Misexpression of Chx10 in the developing retinal pigmented epithelium (RPE) caused downregulation of Mitf, Tfec, and associated pigment markers, leading to a nonpigmented RPE. These data link Chx10 and Mitf to maintenance of the neural retina and RPE fates respectively. Further, they suggest a new role for Chx10 in maintenance of compartment boundaries in the peripheral retina.