Homeobox genes have recently been demonstrated to be important for the prop
er patterning of the mammalian telencephalon, One of these genes is Gsh2, w
hose expression in the forebrain is restricted to the ventral domain. In th
is study, we demonstrate that Gsh2 is a downstream target of sonic hedgehog
and that lack of Gsh2 results in profound defects in telencephalic develop
ment, Gsh2 mutants have a significant decrease in the expression of numerou
s genes that mark early development of the lateral ganglionic eminence, the
striatal anlage, Accompanying this early loss of patterning genes is an in
itial expansion of dorsal telencephalic markers across the cortical-striata
l boundary into the lateral ganglionic eminence. Interestingly, as developm
ent proceeds, there is compensation for this early loss of markers that is
coincident with a molecular reestablishment of the cortical-striatal bounda
ry. Despite this compensation, there is a defect in the development of dist
inct subpopulations of striatal neurons. Moreover, while our analysis sugge
sts that the migration of the ventrally derived interneurons to the develop
ing cerebral cortex is not significantly affected in Gsh2 mutants, there is
a distinct delay in the appearance of GABAergic interneurons in the olfact
ory bulb, Taken together, our data support a model in which Gsh2, in respon
se to sonic hedgehog signaling, plays a crucial role in multiple aspects of
telencephalic development.