The homeobox gene Hex is expressed in the anterior visceral endoderm (AVE) and rostral definitive endoderm of early mouse embryos. Later, Hex transcripts are detected in liver, thyroid and endothelial precursor cells. A null mutation was introduced into the Hex locus by homologous recombination in embryonic stem cells. Hex mutant embryos exhibit varying degrees of anterior truncation as well as liver and thyroid dysplasia. The liver diverticulum is formed but migration of hepatocytes into the septum transversum fails to occur. Development of the thyroid is arrested at the thyroid bud stage at 9.5 dpc. Brain defects are restricted to the rostral forebrain and have a caudal limit at the zona limitans intrathalamica, the boundary between dorsal and ventral thalamus. Analysis of Hex^−/− mutants at early stages shows that the prospective forebrain ectoderm is correctly induced and patterned at 7.5 days post coitum (dpc), but subsequently fails to develop. AVE markers are expressed and correctly positioned but development of rostral definitive endoderm is greatly disturbed in Hex^−/− embryos. Chimeric embryos composed of Hex^−/− cells developing within a wild-type visceral endoderm show forebrain defects indicating that Hex is required in the definitive endoderm. All together, these results demonstrate that Hex function is essential in definitive endoderm for normal development of the forebrain, liver and thyroid gland.