During body morphogenesis precisely coordinated cell movements and cell shape changes organize the newly differentiated cells of an embryo into functional tissues. Here we describe two genes, gex-2 and gex-3, whose activities are necessary for initial steps of body morphogenesis in Caenorhabditis elegans. In the absence of gex-2 and gex-3 activities, cells differentiate properly but fail to become organized. The external hypodermal cells fail to spread over and enclose the embryo and instead cluster on the dorsal side. Postembryonically gex-3 activity is required for egg laying and for proper morphogenesis of the gonad. GEX-2 and GEX-3 proteins colocalize to cell boundaries and appear to directly interact. GEX-2 and GEX-3 are highly conserved, with vertebrate homologs implicated in binding the small GTPase Rac and a GEX-3 Drosophila homolog, HEM2/NAP1/KETTE, that interacts genetically with Rac pathway mutants. Our findings suggest that GEX-2 and GEX-3 may function at cell boundaries to regulate cell migrations and cell shape changes required for proper morphogenesis and development.