Immediately prior to gastrulation the murine embryo consists of an outer layer of visceral endoderm (VE) and an inner layer of ectoderm. Differentiation and migration of the ectoderm then occurs to produce the three germ layers (ectoderm, embryonic endoderm and mesoderm) from which the fetus is derived. An indication that the VE might have a critical role in this process emerged from studies of Hnf-4(−/−) mouse embryos which fail to undergo normal gastrulation. Since expression of the transcription factor HNF-4 is restricted to the VE during this phase of development, we proposed that HNF-4-regulated gene expression in the VE creates an environment capable of supporting gastrulation. To address this directly we have exploited the versatility of embryonic stem (ES) cells which are amenable to genetic manipulation and can be induced to form VE in vitro. Moreover, embryos derived solely from ES cells can be generated by aggregation with tetraploid morulae. Using Hnf-4(−/−) ES cells we demonstrate that HNF-4 is a key regulator of tissue-specific gene expression in the VE, required for normal expression of secreted factors including alphafetoprotein, apolipoproteins, transthyretin, retinol binding protein, and transferrin. Furthermore, specific complementation of Hnf-4(−/−) embryos with tetraploid-derived Hnf-4(+/+) VE rescues their early developmental arrest, showing conclusively that a functional VE is mandatory for gastrulation.