The role of FGF signaling in early epithelial di erentiation was investigated in ES (embryonic stem) cell derived embryoid bodies. A dominant negative ®broblast growth factor receptor (FGFR) mutation was created by stably introducing into ES cells an Fgfr2 cDNA, truncated in its enzymatic domains. These cells failed to di erentiate into cystic embryoid bodies. No epithelial di erentiation and cavitation morphogenesis could be observed, in the mutant, although its rate of cell proliferation remained unchanged. This phenotype was associated with a signi®cant decrease in the activation of Akt/PKB and PLCg-1, as compared to the wild type, while the activation of MAPK/Erk was less a ected. Requirement for PI 3-kinase signaling in embryoid body di erentiation was demonstrated by speci®c inhibitors. Akt/PKB activation was abrogated by wortmannin in short-term experiments. In long-term cultures Ly294002 inhibited the di erentiation of ES cells into embryoid bodies. Our data demonstrate that for early epithelial di erentiation FGF signaling is required through the PI 3-kinase-Akt/ PKB pathway.