The earliest cell fate decision in the mammalian embryo separates the extra-embryonic trophoblast lineage, which forms the fetal portion of the placenta, from the embryonic cell lineages. The body plan of the embryo proper is established only later at gastrulation, when the pluripotent epiblast gives rise to the germ layers ectoderm, mesoderm and endoderm. Here we show that the T-box gene Eomesodermin performs essential functions in both trophoblast development and gastrulation. Mouse embryos lacking Eomesodermin arrest at the blastocyst stage. Mutant trophoectoderm does not differentiate into trophoblast, indicating that Eomesodermin may be required for the development of trophoblast stem cells. In the embryo proper, Eomesodermin is essential for mesoderm formation. Although the specification of the anterior-posterior axis and the initial response to mesoderm-inducing signals is intact in mutant epiblasts, the prospective mesodermal cells are not recruited into the primitive streak. Our results indicate that Eomesodermin defines a conserved molecular pathway controlling the morphogenetic movements of germ layer formation and has acquired a new function in mammals in the differentiation of trophoblast.