Targeted inactivation of the Bmp7 gene in mouse leads to eye defects with late onset and variable penetrance (A. T. Dudley et al., 1995, Genes Dev. 9, 2795-2807; G. Luo et al., 1995, Genes Dev. 9, 2808-2820). Here we report that the expressivity of the Bmp7 mutant phenotype markedly increases in a C3H/He genetic background and that the phenotype implicates Bmp7 in the early stages of lens development. Immunolocalization experiments show that BMP7 protein is present in the head ectoderm at the time of lens placode induction. Using an in vitro culture system, we demonstrate that addition of BMP7 antagonists during the period of lens placode induction inhibits lens formation, indicating a role for BMP7 in lens placode development. Next, to integrate Bmp7 into a developmental pathway controlling formation of the lens placode, we examined the expression of several early lens placode-specific markers in Bmp7 mutant embryos. In these embryos, Pax6 head ectoderm expression is lost just prior to the time when the lens placode should appear, while in Pax6-deficient (Sey/Sey) embryos, Bmp7 expression is maintained. These results could suggest a simple linear pathway in placode induction in which Bmp7 functions upstream of Pax6 and regulates lens placode induction. At odds with this interpretation, however, is the finding that expression of secreted Frizzled Related Protein-2 (sFRP-2), a component of the Wnt signaling pathway which is expressed in prospective lens placode, is absent in Sey/Sey embryos but initially present in Bmp7 mutants. This suggests a different model in which Bmp7 function is required to maintain Pax6 expression after induction, during a preplacodal stage of lens development. We conclude that Bmp7 is a critical component of the genetic mechanism(s) controlling lens placode formation.