Somites, segmented mesodermal units of the vertebrate embryo, are the precursors of adult skeletal muscle, bone and cartilage. During embryogenesis, somite progenitor cells ingress through the primitive streak, move laterally to a paraxial position (alongside the body axis) and segment into epithelial somites. Little is known about how this paraxial mesoderm tissue is specified. We have previously described a mouse T-box gene, Tbx6, which codes for a putative DNA-binding protein. The embryonic pattern of expression of Tbx6 in somite precursor cells suggests that this gene may be involved in the specification of paraxial mesoderm. We now report the creation of a mutation in Tbx6 that profoundly affects the differentiation of paraxial mesoderm. Irregular somites form in the neck region of mutant embryos, whereas more posterior paraxial tissue does not form somites but instead differentiates along a neural pathway, forming neural-tube-like structures that flank the axial neural tube. These paraxial tubes show dorsal/ventral patterning that is characteristic of the neural tube, and have differentiated motor neurons. These results indicate that Tbx6 is needed for cells to choose between a mesodermal and a neuronal differentiation pathway during gastrulation; Tbx6 is essential for the specification of posterior paraxial mesoderm, and in its absence cells destined to form posterior somites differentiate along a neuronal pathway.