Thrombospondin type 1 repeat (TSR) superfamily members regulate diverse biological activities ranging from cell motility to inhibition of angiogenesis. In this study, we verified that mouse protein O-fucosyltransferase-2 (POFUT2) specifically adds O-fucose to TSRs. Using two Pofut2 gene-trap lines, we demonstrated that O-fucosylation of TSRs was essential for restricting epithelial to mesenchymal transition in the primitive streak, correct patterning of mesoderm, and localization of the definitive endoderm. Although Pofut2 mutant embryos established anterior/posterior polarity, they underwent extensive mesoderm differentiation at the expense of maintaining epiblast pluripotency. Moreover, mesoderm differentiation was biased towards the vascular endothelial cell lineage. Localization of Foxa2 and Cer1 expressing cells within the interior of Pofut2 mutant embryos suggested that POFUT2 activity was also required for the displacement of the primitive endoderm by definitive endoderm. Notably, Nodal, BMP4, Fgf8, and Wnt3 expression were markedly elevated and expanded in Pofut2 mutants, providing evidence that O-fucose modification of TSRs was essential for modulation of growth factor signaling during gastrulation. The ability of Pofut2 mutant embryos to form teratomas comprised of tissues from all three germ layer origins suggested that defects in Pofut2 mutant embryos resulted from abnormalities in the extracellular environment. This prediction is consistent with the observation that POFUT2 targets are constitutive components of the extracellular matrix (ECM) or associate with the ECM. For this reason, the Pofut2 mutants represent a valuable tool for studying the role of O-fucosylation in ECM synthesis and remodeling, and will be a valuable model to study how post-translational modification of ECM components regulates the formation of tissue boundaries, cell movements, and signaling.