Although the development of the vertebrate eye is well described, the number of transcription factors known to be key to this process is still limited. The localized expression of the orphan nuclear receptor Tlx in the optic cup and discrete parts of the central nervous system suggested the possible role of Tlx in the formation or function of these structures. Analyses of Tlx targeted mice revealed that, in addition to the central nervous system cortical defects, lack of Tlx function results in progressive retinal and optic nerve degeneration with associated blindness. An extensive screen of Tlx-positive and Tlx-negative P19 neural precursors identified Pax2 as a candidate target gene. This identification is significant, because Pax2 is known to be involved in retinal development in both the human and the mouse eye. We find that Pax2 is a direct target and that the Tlx binding site in its promoter is conserved between mouse and human. These studies show that Tlx is a key component of retinal development and vision and an upstream regulator of the Pax2 signaling cascade.