Vertebrate midbrain development depends on an organizing centre located at the isthmus, a constriction in the embryonic mid/hindbrain region-(1-3,28). Isthmic tissue grafts transform chick caudal forebrain into an ectopic midbrain that is the mirror image of the normal midbrain(4). Here we report that FGF8 protein has the same midbrain-inducing and polarizing effect as isthmic tissue. Moreover, FGF8 induces ectopic expression in the forebrain of genes normally expressed in the isthmus, suggesting that the ectopic midbrain forms under the influence of signals from a new ’isthmus-like’ organizing centre induced in the forebrain. Because Fgf8 itself is expressed in the isthmus, our results identify FGF8 as an important signalling molecule in normal midbrain development.