Bmp4 expression is tightly regulated during embryonic tooth development, with early expression in the dental epithelial placode leading to later expression in the dental mesenchyme. Msx1 is among several transcription factors that are induced by epithelial Bmp4 and that, in turn, are necessary for the induction and maintenance of dental mesenchymal Bmp4 expression. Thus, Msx1(-/-) teeth arrest at early bud stage and show loss of Bmp4 expression in the mesenchyme. Ectopic expression of Bmp4 rescues this bud stage arrest. We have identified Tbx2 expression in the dental mesenchyme at bud stage and show that this can be induced by epithelial Bmp4. We also show that endogenous Tbx2 and Msx1 can physically interact in mouse C3H10T1/2 cells. In order to ascertain a functional relationship between Msx1 and Tbx2 in tooth development, we crossed Tbx2 and Msx1 mutant mice. Our data show that the bud stage tooth arrest in Msx1(-/-) mice is partially rescued in Msx1(-/-);Tbx2(+/-) compound mutants. This rescue is accompanied by formation of the enamel knot (EK) and by restoration of mesenchymal Bmp4 expression. Finally, knockdown of Tbx2 in C3H10T1/2 cells results in an increase in Bmp4 expression. Together, these data identify a novel role for Tbx2 in tooth development and suggest that, following their induction by epithelial Bmp4, Msx1 and Tbx2 in turn antagonistically regulate odontogenic activity that leads to EK formation and to mesenchymal Bmp4 expression at the key bud-to-cap stage transition.