Disruption of the mouse Hex gene resulted in embryonic lethality around embryonic age (E) 10.5, due to no substantial liver formation. Expression of albumin was detectable in heterozygous (Hex(+/-)) but not in homozygous (Hex(+/-)) embryos at E8.5. Instead of liver bud formation at E9.5. a liver-like capsule structure was observed in Hex(+/-) embryos. In Hex(+/-) mutant liver, we found no hepatocytes but no signs of apoptotic cell death in the area, Expression of transcription factors involved in hepatocyte differentiation, hepatocyte nuclear factor (Hnf)3 beta, Hnf6 Hnf4 alpha and Hnf1 alpha; were restricted to the capsule and internal matrix-like structure in the mutant liver and expression of a subset of these factors were reduced. Hematopoiesis of monocytes was impaired in mutant embryos while erythroid lineage was unaffected. These results indicate that Hex plays an essential role in progenitor cells which commit to the hepatic endoderm and in the hematopoietic differentiation of the monocyte lineage.