MAN1 is an integral protein of the inner nuclear membrane of the nuclear envelope (NE). MAN1 interacts with SMAD transcription factors, which in turn are regulated by the Transforming growth factor beta (TGFbeta) superfamily of signaling molecules. To determine the role of MAN1 in mouse development, we used a gene-trap embryonic stem cell clone to derive mice with a functional mutation in MAN1 (Man1(GT/GT)). Expression of Man1 during early development is initially low but increases at embryonic day 9.5 (E9.5). Coincident with this increase, homozygous gene-trapped Man1 (Man1(GT/GT)) embryos die by E10.5. Examination of mutant embryos and tetraploid rescue experiments reveals that abnormal yolk-sac vascularization is the probable cause of lethality. We also established embryonic stem cell lines and their differentiated derivatives that are homozygous for the Man1(GT) allele. Using these lines, we show that the Man1(GT) allele results in increased phosphorylation, nuclear localization and elevated levels of SMAD transcriptional activity, predominantly of SMAD2/3, which are regulated by the ALK5 signaling pathway. Our studies identify a previously uncharacterized role for an integral nuclear envelope protein in the regulation of yolk-sac angiogenesis by TGFbeta signaling and reveal that the NE has an essential role in regulating transcription factor activity during mouse development.