During murine peri-implantation development, the egg cylinder forms from a solid cell mass by the apoptotic removal of inner cells that do not contact the basement membrane (BM) and the selective survival of the epiblast epithelium, which does. The signaling pathways that mediate this fundamental biological process are largely unknown. Here we demonstrate that Rac1 ablation in embryonic stem cell-derived embryoid bodies (EBs) leads to massive apoptosis of epiblast cells in contact with the BM. Expression of wild-type Rac1 in the mutant EBs rescues the BM-contacting epiblast, while expression of a constitutively active Rac1 additionally blocks the apoptosis of inner cells and cavitation, indicating that the spatially regulated activation of Rac1 is required for epithelial cyst formation. We further show that Rac1 is activated through integrin-mediated recruitment of the Crk-DOCK180 complex and mediates BM-dependent epiblast survival through activating the phosphatidylinositol 3-kinase (PI3K)-Akt signaling pathway. Our results reveal a signaling cascade triggered by cell-BM interactions essential for epithelial morphogenesis.All epithelial sheets and tubes rest upon a basement membrane (BM), a thin mat of specialized extracellular matrix (ECM) consisting of laminins, type IV collagens, perlecan, and nidogens. The BM provides essential survival signals to protect epithelial cells from apoptosis, in addition to its role in cell adhesion, migration, proliferation, and polarity orientation. In the developing chick retina, removal of the retinal BM by collagenase digestion resulted in severe apoptosis of retinal neuroepithelial cells (17). In mice, targeted deletion of the genes for the BM component laminins or perlecan caused BM defects and various degrees of apoptosis of cells that attach to the BM (34,41,42). Also, mammary epithelial cells can survive for a long period of time when grown on a reconstituted basement membrane derived from Engelbreth-Holmof Swarm (EHS) tumor (Matrigel), but they die by apoptosis when grown on plastic, fibronectin, or type I collagen despite their firm attachment on these substrates (2,11,36). A similar response of keratinocytes to BM type IV collagen versus non-BM matrix proteins was observed in bioengineered human skin equivalents (40). These results suggest that the BM provides a unique microenvironment for the survival of associated epithelial cells.Embryoid body (EB) differentiation has been used to study epithelial morphogenesis and early embryogenesis. When cultured in suspension as small aggregates, mouse embryonic stem (ES) cells adhere strongly together and form spherical EBs. The outer cells of the EB differentiate to become endoderm cells, which secrete laminins, type IV collagen, perlecan, and other BM components that assemble into an underlying BM equivalent to the embryonic BM separating extraembryonic endoderm from the epiblast. Integrin ␣61 in the epiblast cells and integrin ␣51 in the endoderm cells redistribute from a pericellular location to a predominantly subbase...