The formation of the proamniotic cavity in the mammalian embryo is the earliest of many instances throughout development in which programmed cell death and the formation of epithelia play fundamental roles (Coucouvanis, E., and G.R. Martin. 1995. Cell. 83:279-287). To determine the role of the basement membrane (BM) in cavitation, we use embryoid bodies derived from mouse embryonic stem cells in which the LAMC1 genes have been inactivated to prevent BM deposition (Smyth, N., H.S. Vatansever, P. Murray, M. Meyer, C. Frie, M. Paulsson, and D. Edgar. 1999. J. Cell Biol. 144:151-610). We demonstrate here that LAMC1-/- embryoid bodies are unable to cavitate, and do not form an epiblast epithelium in the absence of a BM, although both embryonic ectodermal cells and extraembryonic endodermal cells do differentiate, as evidenced by the expression of cell-specific markers. Acceleration or rescue of BM deposition by exogenous laminin in wild-type or LAMC1-/- embryoid bodies, respectively, results in cavitation that is temporally and spatially associated with restoration of epiblast epithelial development. We conclude that the BM not only directly regulates development of epiblast epithelial cells, but also indirectly regulates the programmed cell death necessary for cavity formation.