Congenital diaphragmatic hernia (CDH), a life-threatening anomaly, is a major cause of pediatric mortality. Although the disease was described >350 years ago, the etiology of CDH is poorly understood. Here, we show that tissue-specific null mutants of COUP-TFII exhibit Bochdalek-type CDH, the most common form of CDH. COUP-TFII, a member of orphan nuclear receptors, is expressed in regions critical for the formation of the diaphragm during embryonic development. Ablation of COUP-TFII in the foregut mesenchyme, including the posthepatic mesenchymal plate (PHMP), results in the malformation of the diaphragm and the failure of appropriate attachment of the PHMP to the body wall. Thus, both the stomach and liver enter the thoracic cavity, leading to lung hypoplasia and neonatal death. Recently a minimally deleted region for CDH has been identified on chromosome 15q26.1-26.2 by CGH array and FISH analysis. COUP-TFII is one of the four known genes residing within this critical region. Our finding suggests that COUP-TFII is a likely contributor to the formation of CDH in individuals with 15q deletions, and it may also be a potential contributor to some other Bochdalek-type of CDH.