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After implantation, pluripotent epiblasts are converted to embryonic ectoderm through cell-cell interactions that significantly change the transcriptional and epigenetic networks. An entree to understanding this vital developmental transition is the t(w5) mutation of the mouse t complex. This mutation produces highly specific defects in the embryonic ectoderm before gastrulation, leading to death of the embryonic ectoderm. Using a positional cloning approach, we have now identified the mutated gene, completing a decades-long search. The gene, vacuolar protein sorting 52 (Vps52), is a mouse homolog of yeast VPS52 that is involved in the retrograde trafficking of endosomes. Our data suggest that Vps52 acts in extraembryonic tissues to support the growth and differentiation of embryonic ectoderm via cell-cell interactions. It is also required in the formation of embryonic structures at a later stage of development, revealing hitherto unknown functions of Vps52 in the development of a multicellular organism.