Proteins with SH2 and SH3 domains link tyrosine kinases to intracellular pathways. To investigate the biological functions of a mammalian SH2/SH3 adaptor, we have introduced a null mutation into the mouse gene for Grb2. Analysis of mutant embryonic stem cells, embryos, and chimeras reveals that Grb2 is required during embyrogenesis for the differentiation of endodermal cells and formation of the epiblast. Grb2 acts physiologically as an adaptor, since replacing the C terminus of the Ras activator Sos1 with the Grb2 SH2 domain yields a fusion protein that largely rescues the defects caused by the Grb2 mutation. Furthermore, Grb2 is rate limiting for mammary carcinomas induced by polyomavirus middle T antigen. These data provide genetic evidence for a mammalian Grb2-Ras signaling pathway, mediated by SH2/SH3 domain interactions, that has multiple functions in embryogenesis and cancer.