We have previously shown that the paired-box transcription factors Pax1 and Pax9 synergistically act in the proper formation of the vertebral column. Nevertheless, downstream events of the Pax1/Pax9 action and their target genes remain to be elucidated. We show, by analyzing Pax1;Pax9 double mutant mice, that expression of Bapx1 in the sclerotome requires the presence of Pax1 and Pax9, in a gene dose-dependent manner. By using a retroviral system to overexpress Pax1 in chick presomitic mesoderm explants, we show that Pax1 can substitute for Shh in inducing Bapx1 expression and in initiating chondrogenic differentiation. Furthermore, we demonstrate that Pax1 and Pax9 can transactivate regulatory sequences in the Bapx1 promoter and that they physically interact with the Bapx1 promoter region. These results strongly suggest that Bapx1 is a direct target of Pax1 and Pax9. Together, we conclude that Pax1 and Pax9 are required and sufficient for the chondrogenic differentiation of sclerotomal cells.