Bone morphogenetic protein-4 (BMP-4) is a member of the TGF-beta superfamily of polypeptide signaling molecules, closely related to BMP-2 and to Drosophila decapentaplegic (DPP). To elucidate the role of BMP-4 in mouse development the gene has been inactivated by homologous recombination in ES cells. Homozygous mutant Bmp-4tm1blh embryos die between 6.5 and 9.5 days p.c., with a variable phenotype. Most Bmp-4tm1blh embryos do not proceed beyond the egg cylinder stage, do not express the mesodermal marker T(Brachyury), and show little or no mesodermal differentiation. Some homozygous mutants develop to the head fold or beating heart/early somite stage or beyond. However, they are developmentally retarded and have truncated or disorganized posterior structures and a reduction in extraembryonic mesoderm, including blood islands. These results provide direct genetic evidence that BMP-4 is essential for several different processes in early mouse development, beginning with gastrulation and mesoderm formation. Moreover, in the presumed absence of zygotic ligand, it appears that homozygous mutants can be rescued partially by related proteins or by maternal BMP-4.