Calvarial bones form by direct ossification of mesenchyme. This requires condensation of mesenchymal cells which then proliferate and differentiate into osteoblasts. Congenital hydrocephalus (ch) mutant mice lack the forkhead/winged helix transcription factor Foxc1. In ch mutant mice, calvarial bones remain rudimentary at the sites of initial osteogenic condensations. In this study, we have localized the ossification defect in ch mutants to the calvarial mesenchyme, which lacks the expression of transcription factors Msx2 and Alx4. This lack of expression is associated with a reduction in the proliferation of osteoprogenitor cells. We have previously shown that BMP induces Msx2 in calvarial mesenchyme (Development 125, 1241-1251, 1998). Here, we show that BMP also induces Alx4 in this tissue. We also show that BMP-induced expression of Msx2 and Alx4 requires Foxc1. We therefore suggest that Foxc1 regulates BMP-mediated osteoprogenitor proliferation and that this regulation is required for the progression of osteogenesis beyond the initial condensations in calvarial bone development.