Tropomodulins are a family of proteins that cap the slow-growing end of actin filaments. Erythrocyte tropomodulin (E-Tmod) stabilizes short actin protofilaments in erythrocytes and caps longer sarcomeric actin filaments in striated muscles. We report the knockin of the -galactosidase gene (LacZ) under the control of the endogenous E-Tmod promoter and the knockout of E-Tmod in mouse embryonic stem cells. E-Tmod^/ embryos die around embryonic day 10 and exhibit a noncontractile heart tube with disorganized myofibrils and underdevelopment of the right ventricle, accumulation of mechanically weakened primitive erythroid cells in the yolk sac, and failure of primary capillary plexuses to remodel into vitelline vessels, all required to establish blood circulation between the yolk sac and the embryo proper. We propose a hemodynamic "plexus channel selection" mechanism as the basis for vitelline vascular remodeling. The defects in cardiac contractility, vitelline circulation, and hematopoiesis reflect an essential role for E-Tmod capping of the actin filaments in both assembly of cardiac sarcomeres and of the membrane skeleton in erythroid cells that is not compensated for by other proteins.