D-3-Phosphoglycerate dehydrogenase (Phgdh; EC 1.1.1.95) is the first committed enzyme of L-serine biosynthesis in the phosphorylated pathway. To determine the physiological importance of Phgdh-dependent L-serine biosynthesis in vivo, we generated Phgdh-deficient mice using targeted gene disruption in embryonic stem cells. The absence of Phgdh led to a drastic reduction of L-serine metabolites such as phosphatidyl-L-serine and sphingolipids. Phgdh null embryos have small bodies with abnormalities in selected tissues and died after days post-coitum 13.5. Striking abnormalities were evident in the central nervous system in which the Phgdh null mutation culminated in hypoplasia of the telencephalon, diencephalon, and mesencephalon; in particular, the olfactory bulbs, ganglionic eminence, and cerebellum appeared as indistinct structures. These observations demonstrate that the Phgdh-dependent phosphorylated pathway is essential for normal embryonic development, especially for brain morphogenesis.