Transcription factor gene AP-2 gamma belongs to a family of four closely related genes. AP-2 gamma had been implicated in multiple functions during proliferation and differentiation based on its expression pattern in trophoblast, neural crest, and ectoderm cells in murine embryos. In order to address the question of the role of AP-2 gamma during mammalian development, we generated mice harboring a disrupted AP-2 gamma allele. AP-2 gamma heterozygous mice are viable and display reduced body sizes at birth but are fertile. Mice deficient for AP-2 gamma, however, are growth retarded and die at days 7 to 9 of embryonic development. Immunohistochemical analysis revealed that the trophectodermal cells that are found to express AP-2 gamma fail to proliferate, leading to failure of labyrinth layer formation. As a consequence, the developing embryo suffers from malnutrition and dies. Analysis of embryo cultures suggests that AP-2 gamma is also implicated in the regulation of the adenosine deaminase (ADA) gene, a gene involved in purine metabolism found expressed at the maternal-fetal interface. Therefore, AP-2 gamma seems to be required in early embryonic development because it regulates the genetic programs controlling proliferation and differentiation of extraembryonic trophectodermal cells.