The retinoic acid-inducible transcription factor AP-2 is expressed in epithelial and neural crest cell lineages during murine development. AP-2 can regulate neural and epithelial gene transcription, and is associated with overexpression of c-erbB-2 in human breast-cancer cell lines. To ascertain the importance of AP-2 for normal development, we have derived mice containing a homozygous disruption of the AP-2 gene. These AP-2-null mice have multiple congenital defects and die at birth. In particular, the AP-2 knockout mice exhibit anencephaly, craniofacial defects and thoraco-abdominoschisis. Skeletal defects occur in the head and trunk region, where many bones are deformed or absent. Analysis of these mice earlier in embryogenesis indicates a failure of cranial neural-tube closure and defects in cranial ganglia development. We have shown that AP-2 is a fundamental regulator of mammalian craniofacial development.