Previous studies have shown that early mouse embryos with both FGF-4 alleles inactivated are developmentally arrested shortly after implantation. To understand the roles of FGF-4 during early development, we prepared genetically engineered embryonic stem (ES) cells, which are unable to produce FGF-4. Specifically, we describe the isolation and characterization of ES cells with both FGF-4 alleles inactivated. The FGF-4-/- ES cells do not require FGF-4 to proliferate in vitro, and addition of FGF-4 to the medium has little or no effect on their growth. Thus, FGF-4 does not appear to act as an autocrine growth factor for cultured ES cells. We also demonstrate that FGF-4-/- ES cells, like their unmodified counterparts, are capable of forming highly complex tumors in syngeneic mice composed of a wide range of differentiated cells types, including neural tissue, glandular epithelium, and muscle. In addition, we demonstrate that the FGF-4-/- ES cells can differentiate in vitro after exposure to retinoic acid; however, the growth and/or survival of the differentiated cells is severely compromised. Importantly, addition of FGF-4 to the culture medium dramatically increases the number of differentiated cells derived from the FGF-4-/- ES cells, in particular cells with many of the properties of parietal extraembryonic endoderm. Finally, we demonstrate that there are differences in the RNA profiles expressed by the differentiated progeny formed in vitro from FGF-4-/- ES cells and FGF-4+/+ ES cells when they are cultured with FGF-4. Taken together, the studies described in this report indicate that certain lineages formed in vitro are affected by the inactivation of the FGF-4 gene, in particular specific cells that form during the initial stage of ES cell differentiation. Thus, ES cells with both FGF-4 alleles inactivated should shed light on the important roles of FGF-4 during the early stages of mammalian development and help determine why FGF-4-/- embryos die shortly after implantation.