During early mouse development, the anterior visceral endoderm (AVE) secretes inhibitor and activator signals that are essential for establishing the anterior-posterior (AP) axis of the embryo and for restricting mesoderm formation to the posterior epiblast in the primitive streak (PS) region. Here we show that AVE cells have an additional morphogenetic function. These cells express the transmembrane protein FLRT3. Genetic ablation of FLRT3 did not affect the signaling functions of the AVE according to the normal expression pattern of Nodal and Wnt and the establishment of a proper AP patterning in the epiblast. However, FLRT3(-/-) embryos showed a highly disorganized basement membrane (BM) in the AVE region. Subsequently, adjacent anterior epiblast cells displayed an epithelial-to-mesenchymal transition (EMT)-like process characterized by the loss of cell polarity, cell ingression, and the up-regulation of the EMT and the mesodermal marker genes Eomes, Brachyury/T, and FGF8. These results suggest that the AVE acts as a morphogenetic boundary to prevent EMT and mesoderm induction in the anterior epiblast by maintaining the integrity of the BM. We propose that this novel function cooperates with the signaling activities of the AVE to restrict EMT and mesoderm induction to the posterior epiblast.