GATA-4, a transcription factor implicated in lineage determination, is expressed in both parietal and visceral endoderm of the early mouse embryo. In embryonic stem cell-derived embryoid bodies, GATA-4 mRNA is first detectable at 4-5 days of differentiation and is confined to visceral endoderm cells on the surface of the bodies. Previously we reported that targeted mutagenesis of the Gata4 gene in embryonic stem cells results in a block in visceral endoderm differentiation in vitro. In an attempt to elucidate the role of GATA-4 in the formation of visceral endoderm, we have now differentiated Gata4 -/- and wild type embryoid bodies in the presence of retinoic acid +/- dbcAMP, known inducers of endoderm formation. We show that differentiation of Gata4 -/- embryoid bodies in the presence of retinoic acid results in formation of visceral endoderm, while differentiation of Gata4 -/- embryoid bodies in the presence of retinoic acid plus dbcAMP causes parietal endoderm formation. The presence of these yolk sac endoderm layers was confirmed by light microscopy and analysis of biochemical markers including alpha-fetoprotein, type IV collagen, laminin, and binding sites for Dolichos biflorus agglutinin. Treatment of Gata4 -/- embryoid bodies with retinoic acid induces expression of another GATA-binding protein, GATA-6, in both visceral and parietal endoderm cells. That another GATA-binding protein is induced in the absence of GATA-4 suggests that this family of transcription factors plays an important role in yolk sac differentiation.