The lacrimal gland (LG) develops through branching morphogenesis and produces secretions, including tears, that lubricate and protect the ocular surface. Despite the prevalence of LG disorders such as dry eye, relatively little is known about the regulation of LG development. In this study, we show that the homeobox transcription factor Barx2 is highly expressed in conjunctival epithelium, eyelids and ocular [lacrimal, harderian (HG), and meibomian (MG)] glands and is necessary for normal ocular gland and eyelid development. Barx2(-/-) mice show defective LG morphogenesis, absence of the HG, and defects in MG and eyelid fusion. Ex vivo antisense assays confirm the requirement for Barx2 in LG bud elongation and branching. Gene expression profiles reveal decreased expression of several adhesion and matrix remodeling molecules in Barx2(-/-) LGs. In culture, Barx2 regulates expression of matrix metalloproteinases (MMPs) and epithelial cell migration through the extracellular matrix. Fibroblast growth factors are crucial regulators of LG development and we show that Barx2 is required for Fgf10-induced LG bud elongation and that both Barx2 and Fgf10 cooperate in the regulation of MMPs. Together, these data suggest a mechanism for the effects of loss of Barx2 on ocular gland development. Intriguingly, salivary glands that also express a high level of Barx2 develop normally in Barx2(-/-) mice and do not show altered levels of MMPs. Thus, the function of Barx2 is specific to ocular gland development. Based on our data, we propose a functional network involving Barx2, Fgf10 and MMPs that plays an essential role in regulating branching morphogenesis of the ocular glands.