The LAMC1 gene coding for the laminin γ1 subunit was targeted by homologous recombination in mouse embryonic stem cells. Mice heterozygous for the mutation had a normal phenotype and were fertile, whereas homozygous mutant embryos did not survive beyond day 5.5 post coitum. These embryos lacked basement membranes and although the blastocysts had expanded, primitive endoderm cells remained in the inner cell mass, and the parietal yolk sac did not develop. Cultured embryonic stem cells appeared normal after targeting both LAMC1 genes, but the embryoid bodies derived from them also lacked basement membranes, having disorganized extracellular deposits of the basement membrane proteins collagen IV and perlecan, and the cells failed to differentiate into stable myotubes. Secretion of the linking protein nidogen and a truncated laminin α1 subunit did occur, but these were not deposited in the extracellular matrix. These results show that the laminin γ1 subunit is necessary for laminin assembly and that laminin is in turn essential for the organization of other basement membrane components in vivo and in vitro. Surprisingly, basement membranes are not necessary for the formation of the first epithelium to develop during embryogenesis, but first become required for extra embryonic endoderm differentiation.