Microphthalmia is a relatively common ocular malformation. Molecular mechanisms that lead to this dire condition are largely unknown. Msx genes have been shown to be expressed in the developing eye. In the Msx1;Msx2, double mutant mouse, eye development arrests early in embryogenesis. To investigate possible functions of Msx2 in early ocular development, we created transgenic animals that overexpress Msx2.Msx2 transgenic embryos and nontransgenic littermates were examined histopathologically. The effect of Msx2 overexpression on retinal cell proliferation was assayed by bromodeoxyuridine (BrdU) incorporation and immunohistochemical staining. Apoptosis was determined by TUNEL labeling. Expression of retina and retinal pigmented epithelium (RPE)-specific genes was investigated by performing in situ hybridization or immunohistochemical staining.Forced expression of the Msx2 gene resulted in optic nerve aplasia and microphthalmia in all transgenic animals. In developing retinas of Msx2 transgenic animals, proliferation was significantly reduced and increased numbers of retinal cells underwent apoptosis. Marker analysis showed suppression of Bmp4 and induction of Bmp7 gene expression in the optic vesicle. Ectopic concurrent expression of the RPE cell markers Cx43 and Trp-2 in the neural retinal layer suggests cell fate respecification.These results indicate that forced expression of Msx2 perturbs BMP signaling in the developing eye and is accompanied by an increase in retinal cell death and a reduction in cell proliferation. Thus, deregulated Msx2 gene expression may be a plausible genetic mechanism by which the autosomal dominant form of congenital microphthalmia may arise.