BACKGROUND: In early vertebrate development, embryonic tissues modulate cell adhesiveness and acto-myosin contractility to correctly orchestrate the complex processes of gastrulation. E-cadherin (E-cadh) is the earliest expressed cadherin and is needed in the mesendodermal progenitors for efficient migration. Regulatory mechanisms involving directed E-cadh trafficking have been invoked downstream of Wnt11/5 signaling. This non-canonical Wnt pathway regulates RhoA-ROK/DAAM1 to control the acto-myosin network. However, in this context nothing is known of the intracellular signals that participate in the correct localization of E-cadh, other than a need for Rab5c signaling. METHODOLOGY/PRINCIPAL FINDINGS: By studying loss of Chp induced by morpholino-oligonucleotide injection in zebrafish, we find that the vertebrate atypical Rho-GTPase Chp is essential for the proper disposition of cells in the early embryo. The underlying defect is not leading edge F-actin assembly (prominent in the cells of the envelope layer), but rather the failure to localize E-cadh and beta-catenin at the adherens junctions. Loss of Chp results in delayed epiboly that can be rescued by mRNA co-injection, and phenocopies zebrafish E-cadh mutants. This new signaling pathway involves activation of an effector kinase PAK, and involvement of the adaptor PAK-interacting exchange factor PIX. Loss of signaling by any of the three components results in similar underlying defects, which is most prominent in the epithelial-like envelope layer. CONCLUSIONS/SIGNIFICANCE: Our current study uncovers a developmental pathway involving Chp/PAK/PIX signaling, which helps co-ordinate E-cadh disposition to promote proper cell adhesiveness, and coordinate movements of the three major cell layers in epiboly. Our data shows that without Chp signaling, E-cadh shifts to intracellular vesicles rather than the adhesive contacts needed for directed cell movement. These events may mirror the requirement for PAK2 signaling essential for the proper formation of the blood-brain barrier.