We show that a gene introduced into cells of mouse embryos by a retrovirus can serve as a heritable marker for the study of cell lineage in vivo. We constructed a defective recombinant retrovirus in which the Escherichia coli beta-galactosidase (lacZ) gene is inserted in the genome of a Muloney murine leukemia virus (M-MuLV). Expression of lacZ was detected with a histochemical stain that can be applied to cultured cells and embryonic tissue. Infection of cultured cells showed that lacZ has no detectable deleterious effects on cell viability or growth, that the enzyme is stably expressed in the progeny of infected cells for many generations in the absence of selective pressure, and that the virus can induce lacZ in a variety of cell types. Following injection of the virus into mid-gestation mouse embryos, clones of lacZ-positive cells were detected in skin, skull, meninges, brain, visceral yolk sac, and amnion. We identified the cell types comprising a series of lacZ-positive clones in the visceral yolk sac and skin to learn the lineage relationships of the labelled cells. In each tissue, we obtained evidence that several cell types have a pluripotential ancestor and that cell fate is progressively restricted as development proceeds.