The connections formed between sensory and motor neurons (MNs) play a critical role in the control of motor behavior. During development, the axons of proprioceptive sensory neurons project into the spinal cord and form both direct and indirect connections with MNs. Two ETS transcription factors, ER81 and PEA3, are expressed by developing proprioceptive neurons and MNs, raising the possibility that these genes are involved in the formation of sensory-motor connections. Er81 mutant mice exhibit a severe motor discoordination, yet the specification of MNs and induction of muscle spindles occurs normally. The motor defect in Er81 mutants results from a failure of group Ia proprioceptive afferents to form a discrete termination zone in the ventral spinal cord. As a consequence there is a dramatic reduction in the formation of direct connections between proprioceptive afferents and MNs. ER81 therefore controls a late step in the establishment of functional sensory-motor circuitry in the developing spinal cord.