Tissue factor pathway inhibitor (TFPI) is a multivalent Kunitz-type proteinase inhibitor that directly inhibits factor Xa and, in a factor Xa–dependent fashion, produces feedback inhibition of the factor VIIa/TF catalytic complex responsible for the initiation of coagulation. To further define the physiologic role of TFPI, gene-targeting techniques were used to disrupt exon 4 of the TFPI gene in mice. This exon encodes Kunitz domain-1 of TFPI, which is required for factor VIIa/TF inhibition. In mice heterozygous for TFPI gene-disruption, TFPI_K1(+/−), an altered form of TFPI lacking Kunitz domain-1, circulates in plasma at a concentration ∼40% that of wild-type TFPI. TFPI_K1(+/−) animals have plasma TFPI activity ∼50% that of wild-type mice, based on a functional assay that measures factor VIIa/TF inhibition, and have a normal phenotype. Sixty percent of TFPI_K1(−/−) mice die between embryonic days E9.5 and E11.5 with signs of yolk sac hemorrhage. The extent of structural abnormalities within the yolk sac vascular system appears to mirror the condition of the embryo, suggesting that the embryonic and extra-embryonic tissues are both responding to same insult, presumably circulatory insufficiency. Organogenesis is normal in TFPI_K1 null animals that progress beyond E11.5, but hemorrhage, particularly in the central nervous system and tail, is evident during later gestation and none of the TFPI_K1(−/−) mice survive to the neonatal period. The presence of immunoreactive fibrin(ogen) in the liver and intravascular thrombi is consistent with the notion that unregulated factor VIIa/TF action and a consequent consumptive coagulopathy underlies the bleeding diathesis in these older embryos. Human TFPI-deficient embryos may suffer a similar fate because an individual with TFPI deficiency has not been identified.