Neuregulin (also called NDF, heregulin, GGF and ARIA) is a member of the EGF family which induces growth and differentiation of epithelial, glial and muscle cells in culture. The biological effects of the factor are mediated by tyrosine kinase receptors. Neuregulin can bind directly to erbB3 and erbB4 and receptor heterodimerization allows neuregulin-dependent activation of erbB2 (refs 1, 2, 5). A targeted mutation in mice reveals multiple essential roles of neuregulin in development. Here we show that neuregulin -/- embryos die during embryogenesis and display heart malformations. In addition, Schwann cell precursors and cranial ganglia fail to develop normally. The phenotype demonstrates that in vivo neuregulin acts locally and frequently in a paracrine manner. All cell types affected by the mutation express either erbB3 or erbB4, indicating that either of these tyrosine kinase receptors can be a component in recognition and transmission of essential neuregulin signals.