During gestation, the paired box-containing gene Pax2 is expressed in the mid-hindbrain area, developing eye and inner ear. We generated Pax2 null mutant mice, which show the requirement of Pax2 for the establishment of axonal pathways along the optic stalks and ventral diencephalon. In mutant brains, the optic tracts remain totally ipsilateral due to agenesis of the optic chiasma. Furthermore, Pax2 mutants show extension of the pigmented retina into the optic stalks and failure of the optic fissure to close resulting in coloboma. In the inner ear, Pax2 mutants show agenesis of the cochlea and the spiral ganglion, i.e., the parts of the organ responsible for auditory function and in whose primordium Pax2 is expressed. Our results identify Pax2 as a major regulator of patterning during organogenesis of the eye and inner ear and indicate its function in morphogenetic events required for closure of the optic fissure and neural tube.