LIM homeobox genes are characterized by encoding proteins in which two cysteine-rich LIM domains are associated with a homeodomain. We report the isolation of a gene, named Xlim-5 in Xenopus and lim5 in the zebrafish, that is highly similar in sequence but quite distinct in expression pattern from the previously described Xlim-1/lim1 gene. In both species studied the lim5 gene is expressed in the entire ectoderm in the early gastrula embryo. The Xlim-5 gene is activated in a cell autonomous manner in ectodermal cells, and this activation is suppressed by the mesoderm inducer activin. During neurulation, expression of the lim5 gene in both the frog and fish embryo is rapidly restricted to an anterior region in the developing neural plate/keel. In the 2-day Xenopus and 24-hr zebrafish embryo, this region becomes more sharply defined, forming a strongly lim5-expressing domain in the diencephalon anterior to the midbrain-forebrain boundary. In addition, regions of less intense lim5 expression are seen in the zebrafish embryo in parts of the telencephalon, in the anterior diencephalon coincident with the postoptic commissure, and in restricted regions of the midbrain, hindbrain, and spinal cord. Expression in ventral forebrain is abolished from the 5-somite stage onward in cyclops mutant fish. These results imply a role for lim5 in the patterning of the nervous system, in particular in the early specification of the diencephalon.