Palatal fusion is a complex, multi-step developmental process; the consequence of failure in this process is cleft palate, one of the most common birth defects in humans. Previous studies have shown that regression of the medial edge epithelium (MEE) upon palatal fusion is required for this process, and TGF-beta signaling plays an important role in regulating palatal fusion. However, the fate of the MEE and the mechanisms underlying its disappearance are still unclear. By using the Cre/lox system, we are able to label the MEE genetically and to ablate Tgfbr2 specifically in the palatal epithelial cells. Our results indicate that epithelial-mesenchymal transformation does not occur in the regression of MEE cells. Ablation of Tgfbr2 in the palatal epithelial cells causes soft palate cleft, submucosal cleft and failure of the primary palate to fuse with the secondary palate. Whereas wild-type MEE cells disappear, the mutant MEE cells continue to proliferate and form cysts and epithelial bridges in the midline of the palate. Our study provides for the first time an animal model for soft palate cleft and submucous cleft. At the molecular level, Tgfb3 and Irf6 have similar expression patterns in the MEE. Mutations in IRF6 disrupt orofacial development and cause cleft palate in humans. We show here that Irf6 expression is downregulated in the MEE of the Tgfbr2 mutant. As a recent study shows that heterozygous mutations in TGFBR1 or TGFBR2 cause multiple human congenital malformations, including soft palate cleft, we propose that TGF-beta mediated Irf6 expression plays an important, cell-autonomous role in regulating the fate of MEE cells during palatogenesis in both mice and humans.