Targeted inactivation of the murine gene encoding the transcription factor LEF-1 abrogates the formation of organs that depend on epithelial-mesenchymal tissue interactions. In this study we have recombined epithelial and mesenchymal tissues from normal and LEF-1-deficient embryos at different stages of development to define the LEF-1-dependent steps in tooth and whisker organogenesis. At the initiation of organ development, formation of the epithelial primordium of the whisker but not tooth is dependent on mesenchymal Lef1 gene expression. Subsequent formation of a whisker and tooth mesenchymal papilla and completion of organogenesis require transient expression of Lef1 in the epithelium. These experiments indicate that the effect of Lef1 expression is transmitted from one tissue to the other. In addition, the finding that the expression of Lef1 can be activated by bone morphogenetic protein 4 (BMP-4) suggests a regulatory role of this transcription factor in BMP-mediated inductive tissue interactions.