Osr1 and Osr2 are the only mammalian homologs of the Drosophila odd-skipped family developmental regulators. The Osr1 protein contains three zinc-finger motifs whereas Osr2 exists in two isoforms, containing three and five zinc-finger motifs respectively, due to alternative splicing of the transcripts. Targeted null mutations in these genes in mice resulted in distinct phenotypes, with heart and urogenital developmental defects in Osr1^−/− mice and with cleft palate and open eyelids at birth in Osr2^−/− mice. To investigate whether these contrasting mutant phenotypes are due to differences in their protein structure or to differential expression patterns, we generated mice in which the endogenous Osr2 coding region was replaced by either Osr1 cDNA or Osr2A cDNA encoding the five-finger isoform. The knockin alleles recapitulated endogenous Osr2 mRNA expression patterns in most tissues and completely rescued cleft palate and cranial skeletal developmental defects of Osr2^−/− mice. Mice hemizygous or homozygous for either knockin allele exhibited open-eyelids at birth, which correlated with differences in expression patterns between the knockin allele and the endogenous Osr2 gene during eyelid development. Molecular marker analyses in Osr2^−/− and Osr2^{Osr1ki/Osr1ki} mice revealed that Osr2 controls eyelid development through regulation of the Fgf10–Fgfr2 signaling pathway and that Osr1 rescued Osr2 function in maintaining Fgf10 expression during eyelid development in Osr2^{Osr1ki/Osr1ki} mice. These results indicate that the distinct functions of Osr1 and Osr2 during mouse development result from evolutionary divergence of their cis regulatory sequences rather than distinct biochemical activities of their protein products.