Hmx1 is a homeodomain transcription factor expressed in the developing eye, peripheral ganglia, and branchial arches of avian and mammalian embryos. Recent studies have identified a loss-of-function allele at the HMX1 locus as the causative mutation in the oculo-auricular syndrome (OAS) in humans, characterized by ear and eye malformations. The mouse dumbo (dmbo) mutation, with similar effects on ear and eye development, also results from a loss-of-function mutation in the Hmx1 gene. A recessive dmbo mutation causing ear malformation in rats has been mapped to the chromosomal region containing the Hmx1 gene, but the nature of the causative allele is unknown. Here we show that dumbo rats and mice exhibit similar neonatal ear and eye phenotypes. In midgestation embryos, dumbo rats show a specific loss of Hmx1 expression in neural crest-derived craniofacial mesenchyme (CM), while Hmx1 is expressed normally in retinal progenitors, sensory ganglia, and in CM which is derived from mesoderm. High throughput resequencing of 1Mb of rat chromosome 14 from dmbo/dmbo rats, encompassing the Hmx1 locus, reveals numerous divergences from the rat genomic reference sequence, but no coding changes in Hmx1. Fine genetic mapping narrows the dmbo critical region to an interval of 410Kb immediately downstream of the Hmx1 transcription unit, and further sequence analysis of this region reveals a 5,777bp deletion located 80Kb downstream in dmbo/dmbo rats which is not apparent in 137 other rat strains. The dmbo deletion region contains a highly conserved domain of 500bp which is a candidate distal enhancer, and which exhibits a similar relationship to Hmx genes in all vertebrate species for which data are available. We conclude that the rat dumbo phenotype is likely to result from loss of function of an ultraconserved enhancer specifically regulating Hmx1 expression in neural crest-derived CM. Dysregulation of Hmx1 expression is thus a candidate mechanism for congenital ear malformation, most cases of which remain unexplained.