Abstract Background Gene duplication provides opportunities for lineage diversification and evolution of developmental novelties. Duplicated genes generally either disappear by accumulation of mutations (nonfunctionalization), or are preserved either by the origin of positively selected functions in one or both duplicates (neofunctionalization), or by the partitioning of original gene subfunctions between the duplicates (subfunctionalization). The Pax2/5/8 family of important developmental regulators has undergone parallel expansion among chordate groups. After the divergence of urochordate and vertebrate lineages, two rounds of independent gene duplications resulted in the Pax2, Pax5, and Pax8 genes of most vertebrates (the sister group of the urochordates), and an additional duplication provided the pax2a and pax2b duplicates in teleost fish. Separate from the vertebrate genome expansions, a duplication also created two Pax2/5/8 genes in the common ancestor of ascidian and larvacean urochordates. Results To better understand mechanisms underlying the evolution of duplicated genes, we investigated, in the larvacean urochordate Oikopleura dioica, the embryonic gene expression patterns of Pax2/5/8 paralogs. We compared the larvacean and ascidian expression patterns to infer modular subfunctions present in the single pre-duplication Pax2/5/8 gene of stem urochordates, and we compared vertebrate and urochordate expression to infer the suite of Pax2/5/8 gene subfunctions in the common ancestor of olfactores (vertebrates + urochordates). Expression pattern differences of larvacean and ascidian Pax2/5/8 orthologs in the endostyle, pharynx and hindgut suggest that some ancestral gene functions have been partitioned differently to the duplicates in the two urochordate lineages. Novel expression in the larvacean heart may have resulted from the neofunctionalization of a Pax2/5/8 gene in the urochordates. Expression of larvacean Pax2/5/8 in the endostyle, in sites of epithelial remodeling, and in sensory tissues evokes like functions of Pax2, Pax5 and Pax8 in vertebrate embryos, and may indicate ancient origins for these functions in the chordate common ancestor. Conclusion Comparative analysis of expression patterns of chordate Pax2/5/8 duplicates, rooted on the single-copy Pax2/5/8 gene of amphioxus, whose lineage diverged basally among chordates, provides new insights into the evolution and development of the heart, thyroid, pharynx, stomodeum and placodes in chordates; supports the controversial conclusion that the atrial siphon of ascidians and the otic placode in vertebrates are homologous; and backs the notion that Pax2/5/8 functioned in ancestral chordates to engineer epithelial fusions and perforations, including gill slit openings.