To address the function of bone morphogenetic protein-2 (BMP2) in mammalian development, mice with a targeted deletion of the Bmp2 mature region were generated using embryonic stem cell technology. This mutation caused embryonic lethality when homozygous. Mutant embryos failed to close the proamniotic canal, which caused the malformation of the amnion/chorion. BMP2-deficient embryos also exhibited a defect in cardiac development, manifested by the abnormal development of the heart in the exocoelomic cavity. These defects are consistent with the expression of Bmp2 in the extraembryonic mesoderm cells and promyocardium. Thus BMP2 is a critical factor for both extraembryonic and embryonic development.