Axillary meristem (AM) formation is an important determinant of plant architecture. In rice (Oryza sativa), LAX PANICLE1 (LAX1) function is required for the generation of AM throughout the plant's lifespan. Here, we show a close relationship between AM initiation and leaf development; specifically, the plastochron 4 (P4) stage of leaf development is crucial for the proliferation of meristematic cells. Coincident with this, LAX1 expression starts in the axils of leaves at P4 stage. LAX1 mRNA accumulates in two to three layers of cells in the boundary region between the initiating AM and the shoot apical meristem. In lax1 mutants, the proliferation of meristematic cells is initiated but fails to progress into the formation of AM. The difference in sites of LAX1 mRNA expression and its action suggests non-cell-autonomous characteristics of LAX1 function. We found that LAX1 protein is trafficked to AM in a stage- and direction-specific manner. Furthermore, we present evidence that LAX1 protein movement is required for the full function of LAX1. Thus, we propose that LAX1 protein accumulates transiently in the initiating AM at P4 stage by a strict regulation of mRNA expression and a subsequent control of protein trafficking. This two-step regulation is crucial to the establishment of the new AM.