The anterior visceral endoderm (AVE) is an extra-embryonic tissue required for specifying anterior pattern in the mouse embryo. The AVE is induced at the distal tip of the 5.5 dpc embryo and then migrates to the prospective anterior, where it imparts anterior identity upon the underlying epiblast (the tissue that gives rise to the embryo proper). Little is known about how the AVE is induced and what directs its migration. In this paper, we describe an essential role for another extra-embryonic tissue, the extra-embryonic ectoderm (ExE), in patterning the AVE and epiblast. Removal of the ExE in pre-gastrulation embryos leads to ectopic AVE formation, to a failure of AVE cell migration and to the assumption by the entire epiblast of an anterior identity. Ectopic transplantation of ExE cells inhibits AVE formation and leads to an expansion of the posterior epiblast marker T. These results demonstrate that the ExE restricts the induction of the AVE to the distal tip of the mouse embryo and is required to initiate the migration of these cells to the prospective anterior. Together, these data reveal a novel role for the ExE in the specification of the anteroposterior axis of the mouse embryo.