The inner ear develops from the otic vesicle, a one-cell-thick epithelium, which eventually transforms into highly complex structures including the sensory organs for balance (vestibulum) and hearing (cochlea). Several mouse inner ear mutations with hearing and balance defects have been described but for most the underlying genes have not been identified, for example, the genes controlling the development of the vestibular organs. Here, we report the inactivation of the homeobox gene, Nkx5-1, by homologous recombination in mice. This gene is expressed in vestibular structures throughout inner ear development. Mice carrying the Nkx5-1 null mutation exhibit behavioural abnormalities that resemble the typical hyperactivity and circling movements of the shaker/waltzer type mutants. The balance defect correlates with severe malformations of the vestibular organ in Nkx5-1(−/−) mutants, which fail to develop the semicircular canals. Nkx5-1 is the first ear-specific molecule identified to play a crucial role in the formation of the mammalian vestibular system.