The segmented mesoderm in vertebrates gives rise to a variety of cell types in the embryo including the axial skeleton and muscle. A number of transcription factors containing a paired domain (Pax proteins) are expressed in the segmented mesoderm during embryogenesis. These include Pax-3 and a closely related gene, Pax-7, both of which are expressed in the segmental plate and in the dermomyotome. In this paper, we show that signals from the notochord pattern the expression of Pax-3, Pax-7 and Pax-9 in somites and the subsequent differentiation of cell types that arise from the somitic mesoderm. We directly assess the role of the Pax-3 gene in the differentiation of cell types derived from the dermomyotome by analyzing the development of muscle in splotch mouse embryos which lack a functional Pax-3 gene. A population of Pax-3-expressing cells derived from the dermomyotome that normally migrate into the limb are absent in homozygous splotch embryos and, as a result, limb muscles are lost. No abnormalities were detected in the trunk musculature of splotch embryos indicating that Pax-3 is necessary for the development of the limb but not trunk muscle.