The anterior midline tissue (AML) of the late gastrula mouse embryo comprises the axial mesendoderm and the ventral neuroectoderm of the prospective forebrain, midbrain and rostral hindbrain. In this study, we have investigated the morphogenetic role of defined segments of the AML by testing their inductive and patterning activity and by assessing the impact of their ablation on the patterning of the neural tube at the early-somite-stage. Both rostral and caudal segments of the AML were found to induce neural gene activity in the host tissue; however, the de novo gene activity did not show any regional characteristic that might be correlated with the segmental origin of the AML. Removal of the rostral AML that contains the prechordal plate resulted in a truncation of the head accompanied by the loss of several forebrain markers. However, the remaining tissues reconstituted Gsc and Shh activity and expressed the ventral forebrain marker Nkx2.1. Furthermore, analysis of Gsc-deficient embryos reveals that the morphogenetic function of the rostral AML requires Gsc activity. Removal of the caudal AML led to a complete loss of midline molecular markers anterior to the 4th somite. In addition, Nkx2.1 expression was not detected in the ventral neural tube. The maintenance and function of the rostral AML therefore require inductive signals emanating from the caudal AML. Our results point to a role for AML in the refinement of the anteroposterior patterning and morphogenesis of the brain.