Muscle spindles are skeletal muscle sensory organs that provide axial and limb position information (proprioception) to the central nervous system. Spindles consist of encapsulated muscle fibers (intrafusal fibers) that are innervated by specialized motor and sensory axons. Although the molecular mechanisms involved in spindle ontogeny are poorly understood, the innervation of a subset of developing myotubes (type I) by peripheral sensory afferents (group Ia) is a critical event for inducing intrafusal fiber differentiation and subsequent spindle formation. The Egr family of zinc-finger transcription factors, whose members include Egr1 (NGFI-A), Egr2 (Krox-20), Egr3 and Egr4 (NGFI-C), are thought to regulate critical genetic programs involved in cellular growth and differentiation (refs 4-8, and W.G.T. et al., manuscript submitted). Mice deficient in Egr3 were generated by gene targeting and had gait ataxia, increased frequency of perinatal mortality, scoliosis, resting tremors and ptosis. Although extrafusal skeletal muscle fibers appeared normal, Egr3-deficient animals lacked muscle spindles, a finding that is consistent with their profound gait ataxia. Egr3 was highly expressed in developing muscle spindles, but not in Ia afferent neurons or their terminals during developmental periods that coincided with the induction of spindle morphogenesis by sensory afferent axons. These results indicate that type I myotubes are dependent upon Egr3-mediated transcription for proper spindle development.