Shortly after implantation the mouse embryo comprises three tissue layers. The founder tissue of the embryo proper, the epiblast, forms a radially symmetric cup of epithelial cells that grows in close apposition to the extra-embryonic ectoderm and the visceral endoderm. This simple cylindrical structure exhibits a distinct molecular pattern along its proximal-distal axis. The anterior-posterior axis of the embryo is positioned later by coordinated cell movements that rotate the pre-existing proximal-distal axis. The transforming growth factor-beta family member Nodal is known to be required for formation of the anterior-posterior axis. Here we show that signals from the epiblast are responsible for the initiation of proximal-distal polarity. Nodal acts to promote posterior cell fates in the epiblast and to maintain molecular pattern in the adjacent extra-embryonic ectoderm. Both of these functions are independent of Smad2. Moreover, Nodal signals from the epiblast also pattern the visceral endoderm by activating the Smad2-dependent pathway required for specification of anterior identity in overlying epiblast cells. Our experiments show that proximal-distal and subsequent anterior-posterior polarity of the pregastrulation embryo result from reciprocal cell-cell interactions between the epiblast and the two extra-embryonic tissues.