PTP (protein-tyrosine phosphatase)-PEST is a ubiquitously expressed cellular regulator of integrin signalling. It has been shown to bind several molecules such as Shc, paxillin and Grb2, that are involved downstream of FAK (focal adhesion kinase) pathway. Through its specific association to p130cas and further dephosphorylation, PTP-PEST plays a critical role in cell-matrix interactions, which are essential during embryogenesis. We report here that ablation of the gene leads to early embryonic lethality, correlating well with the high expression of the protein during embryonic development. We observed an increased level of tyrosine phosphorylation of p130cas protein in E9.5 PTP-PEST(-/-) embryos, a first evidence of biochemical defect leading to abnormal growth and development. Analysis of null mutant embryos revealed that they reach gastrulation, initiate yolk sac formation, but fail to progress through normal subsequent developmental events. E9.5-10.5 PTP-PEST(-/-) embryos had morphological abnormalities such as defective embryo turning, improper somitogenesis and vasculogenesis, impaired liver development, accompanied by degeneration in both neuroepithelium and somatic epithelia. Moreover, in embryos surviving until E10.5, the caudal region was truncated, with severe mesenchyme deficiency and no successful liver formation. Defects in embryonic mesenchyme as well as subsequent failure of proper vascularization, liver development and somatogenesis, seemed likely to induce lethality at this stage of development, and these results confirm that PTP-PEST plays an essential function in early embryogenesis.