During mouse eye development, the correct formation of the lens occurs as a result of reciprocal interactions between the neuroectoderm that forms the retina and surface ectoderm that forms the lens. Although many transcription factors required for early lens development have been identified, the mechanism and genetic interactions mediated by them remain poorly understood. Foxe3 encodes a winged helix-forkhead transcription factor that is initially expressed in the developing brain and in the lens placode and later restricted exclusively to the anterior lens epithelium. Here, we show that targeted disruption of Foxe3 results in abnormal development of the eye. Cells of the anterior lens epithelium show a decreased rate of proliferation, resulting in a smaller than normal lens. The anterior lens epithelium does not properly separate from the cornea and frequently forms an unusual, multilayered tissue. Because of the abnormal differentiation, lens fiber cells do not form properly, and the morphogenesis of the lens is greatly affected. The abnormally differentiated lens cells remain irregular in shape, and the lens becomes vacuolated. The defects in lens development correlate with changes in the expression of growth and differentiation factor genes, including DNase II-like acid DNase, Prox1, p57, and PDGFalpha receptor. As a result of abnormal lens development, the cornea and the retina are also affected. While Foxe3 is also expressed in a distinct region of the embryonic brain, we have not observed abnormal development of the brain in Foxe3(-/-) animals.