Tumor suppressor Apc (adenomatous polyposis coli) is implicated in the Wnt signaling pathway that is involved in the early embryonic development and tumorigenesis in vertebrates. While the heterozygous null mutant mice develop intestinal polyps, the homozygous embryos die before gastrulation. To investigate the role of Apc in later embryonic development, we constructed a novel hypomorphic Apc allele whose expression was attenuated by approximately 80%. In the hypomorphic Apc homozygous ES cells, reduction in Apc expression caused beta-catenin accumulation and Wnt signaling activation. The homozygous mutant mouse embryos survived 3 days longer than the null mutant embryos. Interestingly, they showed anterior truncation, partial axis duplication, and defective ventral morphogenesis. To determine the tissues where Apc functions for anterior and ventral morphogenesis, we constructed chimeric embryos whose epiblast was derived predominantly from the Apc hypomorphic homozygous cells but the visceral endoderm was from the wild type. Although these chimeric embryos still showed some anterior defects, their ventral morphogenesis was rescued. In addition, marker studies indicated that the axial mesendoderm was also defective in the homozygous embryos. Our results provide genetic evidence that expression of Apc at the normal level is essential for both anterior and ventral development, in the epiblast derivatives and visceral endoderm.