Shortly after implantation the mouse embryo comprises three tissue layers. The founder tissue of the embryo proper, the epiblast, forms a radially symmetric cup of epithelial cells that grows in close apposition to the extra-embryonic ectoderm and the visceral endoderm. This simple cylindrical structure exhibits a distinct molecular pattern along its proximal–distal axis. The anterior–posterior axis of the embryo is positioned later by coordinated cell movements that rotate the pre-existing proximal–distal axis^,,,. The transforming growth factor-β family member Nodal is known to be required for formation of the anterior–posterior axis. Here we show that signals from the epiblast are responsible for the initiation of proximal–distal polarity. Nodal acts to promote posterior cell fates in the epiblast and to maintain molecular pattern in the adjacent extra-embryonic ectoderm. Both of these functions are independent of Smad2. Moreover, Nodal signals from the epiblast also pattern the visceral endoderm by activating the Smad2-dependent pathway required for specification of anterior identity in overlying epiblast cells. Our experiments show that proximal–distal and subsequent anterior–posterior polarity of the pregastrulation embryo result from reciprocal cell–cell interactions between the epiblast and the two extra-embryonic tissues.