Spontanteous mutations in the T-box gene TBX3, result in the human ulnar-mammary syndrome, a dominant developmental disorder characterized by abnormal forelimb and apocrine gland development. In order to develop a mouse model to study the role of this gene during development and disease, we produced a mutation in the mouse ortholog, Tbx3. The phenotype of the mutant mice verifies the role of this gene in limb and mammary gland development, and, in addition, reveals a previously unknown role for the gene in the yolk sac, a fetal membrane that is the site of hematopoiesis and is essential for survival during gestation. In homozygous mutant embryos, the yolk sac undergoes cell death and degeneration at midgestation and the fetuses die over a range of several days; none survive to birth. Tbx3 is the first T-box gene implicated in yolk sac development. Homozygous embryos show a deficiency of mammary gland induction, and exhibit both forelimb and hindlimb abnormalities. Although heterozygous mice, unlike their heterozygous human counterparts, have no apparent phenotype in limb or mammary gland, the homozygous defects in the development of these organs represent more severe manifestations of the defects characteristic of the ulnar-mammary syndrome.