Abstract LIF (leukaemia inhibitory factor) is commonly used to maintain mouse embryonic stem cells in an undifferentiated state. These cells spontaneously differentiate when allowed to aggregate in the absence of LIF, forming embryoid bodies in which early embryonic cell lineages develop. Using embryoid bodies cultured in the presence and absence of LIF, we show that although LIF inhibited the development of visceral and parietal endodermal cells, it did not affect the differentiation of the primitive endodermal cell precursors of these extraembryonic cell lineages. Furthermore, deposition of the basement membrane produced by the primitive endodermal cells, which separates them from the remaining cells of the embryoid body, still occurred. The differentiation of primitive ectodermal cells and their progeny was inhibited by LIF, as evidenced by the lack of expression of FGF-5, muscle, and neuronal markers. However, cavitation of the embryoid body and maintenance of the cells in contact with the primitive endodermal basement membrane as an epiblast epithelium still occurred normally in the presence of LIF. These results indicate that cavitation and formation of the epiblast epithelium are regulated by mechanisms distinct from those controlling the differentiation of epiblast cell lineages. Furthermore, although epithelium formation and cavitation do not require the differentiation of visceral endodermal cells, the results are consistent with the hypothesis that the primitive endodermal basement membrane is sufficient to induce the epithelialization of undifferentiated embryonic stem cells necessary for cavitation.