Dorsal mesoderm is thought to provide important signals for axis formation and neural differentiation in vertebrate embryos. We have examined induction and patterning in a zebrafish mutant, no tail, that lacks a derivative of dorsal mesoderm, the notochord. Despite the absence of a differentiated notochord, development of the central nervous system including floor plate appears normal, likely owing to the presence of notochord precursor cells. In contrast, somites are misshapen, and muscle pioneer cells are absent. Wild-type cells transplanted into mutant hosts can autonomously differentiate into notochord and thereby rescue somitic defects, suggesting that interactions between notochord and paraxial mesoderm are necessary for proper somite patterning. Thus, cells derived from dorsal mesoderm may have multiple signaling functions during zebrafish embryogenesis.