In mammalian embryonic stem cells, the acquisition of pluripotency is dependent on Nanog, but the in vivo analysis of Nanog has been hampered by its requirement for early mouse development. In an effort to examine the role of Nanog in vivo, we identified a zebrafish Nanog ortholog and found that its knockdown impaired endoderm formation. Genome-wide transcription analysis revealed that nanog-like morphants fail to develop the extraembryonic yolk syncytial layer (YSL), which produces Nodal, required for endoderm induction. We examined the genes that were regulated by Nanog-like and identified the homeobox gene mxtx2, which is both necessary and sufficient for YSL induction. Chromatin immunoprecipitation assays and genetic studies indicated that Nanog-like directly activates mxtx2, which, in turn, specifies the YSL lineage by directly activating YSL genes. Our study identifies a Nanog-like-Mxtx2-Nodal pathway and establishes a role for Nanog-like in regulating the formation of the extraembryonic tissue required for endoderm induction.