In vertebrates, Evx homeodomain transcription factor-encoding genes are expressed in the posterior region during embryonic development, and overexpression experiments have revealed roles in tail development in fish and frogs. We analyzed the molecular mechanisms of posterior neural development and axis formation regulated by eve1. We show that eve1 is involved in establishing trunk and tail neural ectoderm by two independent mechanisms: First, eve1 posteriorizes neural ectoderm via induction of aldh1a2, which encodes an enzyme that synthesizes retinoic acid; second, eve1 is involved in neural induction in the posterior ectoderm by attenuating BMP expression. Further, eve1 can restore trunk neural tube formation in the organizer-deficient ichabod(-/-) mutant. We conclude that eve1 is crucial for the organization of the anteroposterior and dorso-ventral axis in the gastrula ectoderm and also has trunk-and tail-promoting activity.