SAG/RBX2/ROC2 protein is an essential RING component of SCF E3 ubiquitin ligase. The role of SAG during embryogenesis remains unknown. We report a critical role for SAG in controlling vascular and neural development by modulating RAS activity via promoting degradation of neurofibromatosis type 1 (NF1). Mice mutant for Sag died at embryonic day 11.5–12.5 with severe abnormalities in vascular and nervous system. Sag inactivation caused Nf1 accumulation and Ras inhibition, which blocks embryonic stem (ES) cells from undergoing endothelial differentiation and inhibits angiogenesis and proliferation in teratomas. Simultaneous Nf1 deletion fully rescues the differentiation defects in Sag^−/− ES cells and partially rescues vascular and neural defects in Sag^−/− embryos, suggesting that the effects of Sag deletion may not be solely explained by Nf1 misregulation. Collectively, our study identifies NF1 as a physiological substrate of SAG-CUL1-FBXW7 E3 ligase and establishes a ubiquitin-dependent regulatory mechanism for the NF1-RAS pathway during embryogenesis.