The translation elongation factor 2 in eukaryotes (eEF-2) contains a unique posttranslationally modified histidine residue, termed diphthamide, which serves as the only target for diphtheria toxin and Pseudomonas aeruginosa exotoxin A. Diphthamide biosynthesis is carried out by five highly conserved proteins, Dph1 to Dph5, and an as-yet-unidentified amidating enzyme. The evolutionary conservation of the complex diphthamide biosynthesis pathway throughout eukaryotes implies a key role for diphthamide in normal cellular physiology. Of the proteins required for diphthamide synthesis, Dph3 is the smallest, containing only 82 residues. In addition to having a role in diphthamide biosynthesis, Dph3 is also involved in modulating the functions of the Elongator complex in yeast. To explore the physiological roles of Dph3 and to begin to investigate the function of diphthamide, we generated dph3 knockout mice and showed that dph3+/- mice are phenotypically normal, whereas dph3-/- mice, which lack the diphthamide modification on eEF-2, are embryonic lethal. Loss of both dph3 alleles causes a general delay in embryonic development accompanied by lack of allantois fusion to the chorion and increased degeneration and necrosis in neural tubes and is not compatible with life beyond embryonic day 11.5. The dph3-/- placentas also developed abnormally, showing a thinner labyrinth lacking embryonic erythrocytes and blood vessels. These results attest to the physiological importance of Dph3 in development. The biological roles of Dph3 are also discussed.