The segmental organization of the vertebrate embryo is first apparent when somites form in a rostrocaudal progression from the paraxial mesoderm adjacent to the neural tube. Newly formed somites appear as paired epithelial spheres that become patterned to form vertebrae, ribs, skeletal muscle and dermis. Paraxis is a basic helix-loop-helix transcription factor expressed in paraxial mesoderm and somites. Here we show that in mice homozygous for a paraxis null mutation, cells from the paraxial mesoderm are unable to form epithelia and so somite formation is disrupted. In the absence of normal somites, the axial skeleton and skeletal muscle form but are improperly patterned. Unexpectedly, however, we found that formation of epithelial somites was not required for segmentation of the embryo or for the establishment of somitic cell lineages. These results demonstrate that paraxis regulates somite morphogenesis, and that the function of somites is to pattern the axial skeleton and skeletal muscles.