We have recently shown that genetic replacement of VE-cadherin by a VE-cadherin–α-catenin fusion construct strongly impairs opening of endothelial cell contacts during leukocyte extravasation and induction of vascular permeability in adult mice. Here we show that this mutation leads to lethality at midgestation on a clean C57BL/6 background. Investigating the reasons for embryonic lethality, we observed a lack of fetal liver hematopoiesis and severe lymphedema but no detectable defects in blood vessel formation and remodeling. As for the hematopoiesis defect, VE-cadherin–α-catenin affected neither the generation of hematopoietic stem and progenitor cells (HSPCs) from hemogenic endothelium nor their differentiation into multiple hematopoietic lineages. Instead, HSPCs accumulated in the fetal circulation, suggesting that their entry into the fetal liver was blocked. Edema formation was caused by disturbed lymphatic vessel development. Lymphatic progenitor cells of VE-cadherin–α-catenin-expressing embryos were able to leave the cardinal vein and migrate to the site of the first lymphatic vessel formation, yet subsequently, these cells failed to form large lumenized lymphatic vessels. Thus, stabilizing endothelial cell contacts by a covalent link between VE-cadherin and α-catenin affects recruitment of hematopoietic progenitors into the fetal liver and the development of lymph but not blood vessels.