The mammalian small intestine is lined by a highly specialized epithelium that functions in the digestion and absorption of nutrients. The molecular mechanisms that direct intestinal epithelial cell morphogenesis and terminal differentiation are poorly understood. We have previously identified Elf3 (E74-like factor-3) as a member of the ETS transcription factor family strongly expressed in small intestinal epithelium. The aim of this study is to investigate the biological roles of Elf3 in vivo. Mice with a null mutation of Elf3 were generated through targeted gene disruption. Characterization of intestinal development was performed by histologic and immunohistochemical techniques. Targeted disruption of Elf3 resulted in fetal lethality of about 30% at around embryonic day 11.5. Seventy percent of the Elf3-deficent progeny were born and displayed severe alterations of tissue architecture in the small intestine, manifested by poor villus formation and abnormal morphogenesis and terminal differentiation of absorptive enterocytes and mucus-secreting goblet cells. Crypt cell proliferation, however, appeared intact in Elf3-deficient mice.Elf3-deficient enterocytes express markedly reduced levels of the transforming growth factor beta type II receptor (TGF-beta RII), an inducer of intestinal epithelial differentiation. Elf3 is an important regulator of morphogenesis and terminal differentiation of epithelial cell lineages in the small intestine.