The cut locus of Drosophila encodes a diverged homeodomain-containing protein that is required for the development of external sensory (es) organs and other tissues. A homologous gene (Cux-1) that encodes a transcriptional repressor has been identified in the mouse and other mammals. We have identified a second murine homeobox-containing gene (designated Cux-2) that is structurally related to Drosophila cut. The murine Cux-2 homeobox was similar to Drosophila cut and encoded a homeodomain that contained a characteristic histidine residue at position 50. The predicted Cux-2 protein contained 1426 amino acids and included three internal 60-amino acid repeats (Cut repeats) that were previously found in Drosophila Cut and murine Cux-1. Unlike Cux-1, expression of Cux-2 was restricted to neural tissue. In the adult brain, Cux-2 was prominently expressed in neurons in the thalamus and limbic system. In embryos, Cux-2 was expressed in the developing central and peripheral nervous systems, including the telencephalon and peripheral ganglia of the trigeminal and glossopharyngeal nerves. A glutathione S- transferase fusion protein containing the carboxyl-terminal Cut repeat and homeodomain of Cux-2 exhibited sequence-specific binding to oligonucleotides derived from the promoter of the Ncam gene. Using an interspecific backcross panel, Cux-1 and Cux-2 were mapped to distinct loci that were genetically linked on distal chromosome 5. These results demonstrate that a family of homeobox genes related to Drosophila cut is located on chromosome 5 in the mouse. Cux-2 is expressed exclusively in the central and peripheral nervous systems, and the Cux-2 gene product binds to DNA in a sequence-specific manner. Cux-2 may encode a transcription factor that is involved in neural specification in mammals.