The serum response factor (SRF) transcription factor is essential for murine embryogenesis. Srf−/− embryos stop developing at the onset of gastrulation, lacking detectable mesoderm. This developmental defect may reflect cell‐autonomous impairment of Srf−/− embryonic cells in mesoderm formation. Alternatively, it may be caused by a non‐cell‐autonomous defect superimposed upon inappropriate provision of mesoderm‐inducing signals to primitive ectodermal cells. We demonstrate that the ability of Srf−/− embryonic stem (ES) cells to differentiate in vitro into mesodermal cells is indeed impaired. However, this impairment can be modulated by external, cell‐independent factors. Retinoic acid, but not dimethylsulfoxide, permitted activation of the mesodermal marker gene T (Bra), which was also activated when SRF was expressed in Srf−/− ES cells. Embryoid bodies from Srf−/− ES cell aggregates also activated mesodermal marker genes, but displayed unusual morphologies and impairment in cavitation. Finally, in nude mice, Srf−/− ES cells readily differentiated into mesodermal cells of Srf−/− genotype, including cartilage, bone or muscle cells. We demonstrate that SRF contributes to mesodermal gene expression of ES cells and that Srf−/− ES cells display a non‐cell‐autonomous defect in differentiation towards mesoderm.