The role of the zebrafish transcription factor Nanog has been controversial. It has been suggested that Nanog is primarily required for the proper formation of the extra-embryonic yolk syncytial layer (YSL) and only indirectly regulates gene expression in embryonic cells. In an alternative scenario, Nanog has been proposed to directly regulate transcription in embryonic cells during zygotic genome activation. To clarify the roles of Nanog, we performed a detailed analysis of zebrafish nanog mutants. Whereas zygotic nanog mutants survive to adulthood, maternal-zygotic (MZnanog) and maternal mutants exhibit developmental arrest at the blastula stage. In the absence of Nanog, YSL formation and epiboly are abnormal, embryonic tissue detaches from the yolk, and the expression of dozens of YSL and embryonic genes is reduced. Epiboly defects can be rescued by generating chimeric embryos of MZnanog embryonic tissue with wild-type vegetal tissue that includes the YSL and yolk cell. Notably, cells lacking Nanog readily respond to Nodal signals and when transplanted into wild-type hosts proliferate and contribute to embryonic tissues and adult organs from all germ layers. These results indicate that zebrafish Nanog is necessary for proper YSL development but is not directly required for embryonic cell differentiation.