Dot1 is an evolutionarily conserved histone methyltransferase specific for lysine 79 of histone H3 (H3K79). In Saccharomyces cerevisiae, Dot1-mediated H3K79 methylation is associated with telomere silencing, meiotic checkpoint control, and DNA damage response. The biological function of H3K79 methylation in mammals, however, remains poorly understood. Using gene targeting, we generated mice deficient for Dot1L, the murine Dot1 homologue. Dot1L-deficient embryos show multiple developmental abnormalities, including growth impairment, angiogenesis defects in the yolk sac, and cardiac dilation, and die between 9.5 and 10.5 days post coitum. To gain insights into the cellular function of Dot1L, we derived embryonic stem (ES) cells from Dot1L mutant blastocysts. Dot1L-deficient ES cells show global loss of H3K79 methylation as well as reduced levels of heterochromatic marks (H3K9 di-methylation and H4K20 tri-methylation) at centromeres and telomeres. These changes are accompanied by aneuploidy, telomere elongation, and proliferation defects. Taken together, these results indicate that Dot1L and H3K79 methylation play important roles in heterochromatin formation and in embryonic development.