Pax3 is a key transcription factor implicated in development and human disease. To dissect the role of Pax3 in myogenesis and establish whether it is a repressor or activator, we generated loss- and gain-of-function alleles by targeting an nLacZ reporter and a sequence encoding the oncogenic fusion protein PAX3-FKHR into the Pax3 locus. Rescue of the Pax3 mutant phenotypes by PAX3-FKHR suggests that Pax3 acts as a transcriptional activator during embryogenesis. This is confirmed by a Pax reporter mouse. However, mice expressing PAX3-FKHR display developmental defects, including ectopic delamination and inappropriate migration of muscle precursor cells. These events result from overexpression of c-met, leading to constitutive activation of Met signaling, despite the absence of the ligand SF/HGF. Haploinsufficiency of c-met rescues this phenotype, confirming the direct genetic link with Pax3. The gain-of-function phenotype is also characterized by overactivation of MyoD. The consequences of PAX3-FKHR myogenic activity in the limbs and cervical and thoracic regions point to differential regulation of muscle growth and patterning. This gain-of-function allele provides a new approach to the molecular and cellular analysis of the role of Pax3 and of its target genes in vivo.