All Src family non-receptor tyrosine kinases are negatively regulated by phosphorylation at a carboxy-terminal tyrosine. To analyze the significance of this regulation during development, we have generated mice deficient in Csk, a kinase that phosphorylates this tyrosine, by gene targeting in embryonic stem cells. Homozygous mutant embryos exhibit a complex phenotype that includes defects in the neural tube and die between day 9 and day 10 of gestation. Cells derived from these embryos exhibit an order of magnitude increase in activity of Src and the related Fyn kinase. Phosphorylation at the carboxy-terminal tyrosine of Src was reduced but not eliminated and was accompanied by increased phosphorylation at another key tyrosine residue. These results demonstrate that Src family kinase activity is critically dependent on phosphorylation by Csk and suggest that the regulation of kinase activity may be essential during embryogenesis.