It is well known that cell fate decisions in the mouse organizer region during gastrulation ultimately govern gut formation and patterning, left–right axis determination, and development of the central nervous system. Previous studies suggest that signaling pathways activated by Nodal, bone morphogenetic protein (BMP), and Wnt ligands coordinately regulate patterning of the streak and the formation of midline organizing tissues, but the specific contributions of these molecules within discrete cell lineages are poorly defined. Here we removedSmad2activity in the epiblast, using a conditional inactivation strategy. Abrogation ofSmad2does not compromise primitive streak (PS) formation or gastrulation movements, but rather results in a failure to correctly specify the anterior definitive endoderm (ADE) and prechordal plate (PCP) progenitors. To selectively lowerNodalactivity in the posterior epiblast, we generated a novel allele lacking the proximal epiblast enhancer (PEE) governingNodalexpression in the PS. As for conditional inactivation ofSmad2, germ-line deletion of the PEE selectively disrupts development of the anterior streak. In striking contrast, the node and its midline derivatives, the notochord and floor plate, develop normally in both categories of mutant embryos. Finally, we show that removal of one copy ofSmad3in the context of aSmad2-deficient epiblast results in a failure to specify all axial midline tissues. These findings conclusively demonstrate that gradedNodal/Smad2signals govern allocation of the axial mesendoderm precursors that selectively give rise to the ADE and PCP mesoderm.