The outer layer of the blastocyst, or trophectoderm, is the first cell lineage to differentiate in the mouse embryo, but little is known about the genetic control of its development. Lineage-specific transcription factors may be important in lineage specification, and the product of the Mash-2 gene fulfils the criteria for such a factor. Mash-2 is a mammalian member of the achaete-scute family which encodes basic-helix-loop-helix transcription factors and is strongly expressed in the extraembryonic trophoblast lineage. Mash-2 transcripts are found in the female germ line and in the embryo throughout preimplantation development, but are highly expressed later only in the ectoplacental cone, the chorion and their derivatives in the placenta. Mash-2 transcripts are not found in primary and secondary giant cells, yolk sac or allantois at any post-implantation stage, and are present only transiently and at low levels in the embryo during gastrulation. To analyse the role of Mash-2 in development, we have used gene targeting to generate mice having no Mash-2 function. We report here that Mash-2-/- embryos die from placental failure at 10 days postcoitum. In mutant placentas, spongiotrophoblast cells and their precursors are absent and chorionic ectoderm is reduced. We have rescued this placental mutant phenotype by constructing chimaeras with tetraploid wild-type embryos which contribute almost exclusively to extraembryonic tissues. Mash-2-/- embryos developed normally and adult Mash-2-/- mice were viable, demonstrating that Mash-2 has no major role in the embryo itself. Mash-2 is the first transcription factor shown to play a critical part in the development of the mammalian trophoblast lineage.