The axial structures, the notochord and the neural tube, play an essential role in the dorsoventral patterning of somites and in the differentiation of their many cell lineages. Here, we investigated the role of the axial structures in the mediolateral patterning of the somite by using a newly identified murine homeobox gene, Nkx-3.1, as a medial somitic marker in explant in vitro assays. Nkx-3.1 is dynamically expressed during somitogenesis only in the youngest, most newly-formed somites at the caudal end of the embryo. We found that the expression of Nkx-3.1 in pre-somitic tissue explants is induced by the notochord and maintained in newly- differentiated somites by the notochord and both ventral and dorsal pans of the neural tube. We showed that Sonic hedgehog (Shh) is one of the signaling molecules that can reproduce the effect of the axial structures by exposing explants to either COS cells transfected with a Shh expression construct or to recombinant SHH. Shh could induce and maintain Nkx-3.1 expression in pre- somitic mesoderm and young somites but not in more mature, differentiated ones. The effects of Shh on Nkx-3.1 expression were antagonized by a forskolin-induced increase in the activity of cyclic AMP-dependent protein kinase A. Additionally, we confirmed that the expression of the earliest expressed murine myogenic marker, myf5, is also regulated by the axial structures but that Shh by itself is not capable of inducing or maintaining it. We suggest that the establishment of somitic medial and lateral compartments and the early events in myogenesis are governed by a combination of positive and inhibitory signals derived from the neighboring structures, as has previously been proposed for the dorsoventral patterning of somites.