Fra1 is an immediate-early gene encoding a member of the AP-1 transcription factor family, which has diverse roles in development and oncogenesis. To determine the function of Fra1 in mouse development, the gene was inactivated by gene targeting. Foetuses lacking Fra1 were severely growth retarded and died between E10.0 and E10.5, owing to defects in extra-embryonic tissues. The placental labyrinth layer, where X-gal staining revealed expression of Fra1, was reduced in size and largely avascular, owing to a marked decrease in the number of vascular endothelial cells, as shown by the lack of Flk1 expression. In contrast, the spongiotrophoblast layer was unaffected and expressed the marker genes 4311 (Tpbp) and Flt1. Furthermore, mutant foetuses exhibited yolk-sac defects that may contribute to their growth retardation and lethality. Importantly, when the placental defect was rescued by injection of Fra1(-)(/)(-) ES cells into tetraploid wild-type blastocysts, Fra1(-)(/)(-) pups were obtained that were no longer growth retarded and survived up to 2 days after birth without apparent phenotypic defects. These data indicate that a defect in the extra-embryonic compartment is causal to the observed lethality, and suggest that Fra1 plays a crucial role in establishing normal vascularisation of the placenta.