We have characterized an induced mutation, called embryonic ectoderm development or eed, that disrupts A-P patterning of the mouse embryo during gastrulation. Positional cloning of this gene revealed it to be the highly conserved homologue of the Drosophila gene extra sex combs, which is required for maintenance of long-term transcriptional repression of homeotic gene expression. Mouse embryos homozygous for loss-of-function alleles of eed initiate gastrulation but display abnormal mesoderm production. Very little embryonic mesoderm is produced; in contrast, extraembryonic mesoderm is relatively abundant. These observations, along with mRNA in situ hybridization analyses, suggested a defect in the anterior primitive streak, from which much of the embryonic mesoderm of the wild-type embryo is derived. To analyse this defect, we initiated clonal analysis of the pre-streak epiblast in eed mutant embryos, using the lineage tracer horseradish peroxidase (HRP). The results of these studies indicate that epiblast cells ingress through the anterior streak, but the newly formed mesoderm does not migrate anteriorly and is mislocalized to the extraembryonic compartment. Abnormal localization of mesoderm to the extraembryonic region did not appear to be due to a restriction and alteration of distal epiblast cell fate, since the majority of clones produced from regions fated to ingress through the anterior streak were mixed, displaying descendants in both embryonic and extraembryonic derivatives. eed mutant embryos also fail to display proper epiblast expansion, particularly with respect to the A-P axis. Based on patterns of clonal spread and calculated clone doubling times for the epiblast, this does not appear to be due to decreased epiblast growth. Rather, epiblast, which is normally fated to make a substantial contribution to the axial midline, appears to make mesoderm preferentially. The data are discussed in terms of global morphogenetic movements in the mouse gastrula and a disruption of signalling activity in the anterior primitive streak.