We have studied the role of the basic helix–loop–helix–PAS transcription factor EPAS-1/hypoxia-inducible factor 2α in vascular development by gene targeting. In ICR/129 Sv outbred background, more than half of the mutants displayed varying degrees of vascular disorganization, typically in the yolk sac, and died in utero between embryonic day (E)9.5 and E13.5. In mutant embryos directly derived from EPAS-1^−/− embryonic stem cells (hence in 129 Sv background), all embryos developed severe vascular defects both in the yolk sac and embryo proper and died between E9.5 and E12.5. Normal blood vessels were formed by vasculogenesis but they either fused improperly or failed to assemble into larger vessels later during development. Our results suggest that EPAS-1 plays an important role at postvasculogenesis stages and is required for the remodeling of the primary vascular network into a mature hierarchy pattern.