AbstractRecent studies indicated that retention of selectable marker cassettes in targeted Hox loci may cause unexpected phenotypes in mutant mice, due to neighborhood effects. However, the molecular mechanisms have been poorly investigated. Here, we analysed the effects of the targeted insertion of a PGK‐neo cassette in the 3′ untranslated region of Hoxa2. Even at this 3′ position, the insertion resulted in homozygous mutants that unexpectedly did not survive beyond 3 weeks of age. Molecular analysis of the targeted allele revealed a selective “knockdown” of Hoxa2 expression in rhombomere 2 and associated patterning abnormalities. Moreover, Hoxa1 was ectopically expressed in the hindbrain and branchial arches of mutant embryos. Of interest, we demonstrated that the ectopic expression was due to the generation of neo‐Hoxa1 fusion transcripts, resulting from aberrant alternative splicing. These defects could be rescued after removal of the PGK‐neo cassette by Flp‐mediated recombination. These results underscore the complexity of transcriptional regulation at Hox loci and provide insights into the in vivo regulation of Hoxa2 segmental expression. They also provide a molecular basis for the interpretation of unexpected Hox knockout phenotypes in which the targeted selectable marker is retained in the locus. © 2002 Wiley‐Liss, Inc.