The proto-oncogene c-jun is the cellular homologue of v-jun, the transforming oncogene of the avian sarcoma virus 17 (ref. 1). c-jun encodes one major component of the AP-1 transcription factor complex and is expressed in many organs during mouse development and in the adult. Because of its rapid induction in cells following growth stimulation and the presence of AP-1 binding sites in the promoter regions of many genes, the c-Jun protein is thought to have important functions in cell proliferation and differentiation. But embryonic stem (ES) cells lacking c-Jun are viable and have a normal in vitro differentiation capacity, although c-Jun appears to be important for growth of teratocarcinomas in vivo. To define the function of c-jun better, targeted ES cells were used to generate mice lacking c-Jun. Here we report that heterozygous mutant mice appear normal, but embryos lacking c-Jun die at mid- to late-gestation and exhibit impaired hepatogenesis, altered fetal liver erythropoiesis and generalized oedema. Interestingly, c-jun-/- ES cells can participate efficiently in the development of all somatic cells in chimaeric mice except liver cells, further suggesting an essential function of c-Jun in hepatogenesis.