The lymphatic vasculature transports extravasated tissue fluid, macromolecules and cells back into the blood circulation. Recent reports have focused on the molecular mechanisms regulating the lymphatic vessels. Vascular endothelial growth factor (VEGF)-C and VEGF-D have been shown to stimulate lymphangiogenesis and their receptor, VEGFR-3, has been linked to human hereditary lymphedema. Here we show that a soluble form of VEGFR-3 is a potent inhibitor of VEGF-C/VEGF-D signaling, and when expressed in the skin of transgenic mice, it inhibits fetal lymphangiogenesis and induces a regression of already formed lymphatic vessels, though the blood vasculature remains normal. Transgenic mice develop a lymphedema-like phenotype characterized by swelling of feet, edema and dermal fibrosis. They survive the neonatal period in spite of a virtually complete lack of lymphatic vessels in several tissues, and later show regeneration of the lymphatic vasculature, indicating that induction of lymphatic regeneration may also be possible in humans.