Dorsal organizer formation is one of the most critical steps in early embryonic development. Several genes and signaling pathways that positively regulate the dorsal organizer development have been identified; however, little is known about the factor(s) that negatively regulates the organizer formation. Here, we show that Setdb2, a SET domain-containing protein possessing potential histone H3K9 methyltransferase activity, restricts dorsal organizer development and regulates left-right asymmetry by suppressing fibroblast growth factor 8 (fgf8) expression. Knockdown of Setdb2 results in a massive expansion of dorsal organizer markers floating head (flh), goosecoid (gsc), and chordin (chd), as well as a significant increase of fgf8, but not fgf4 mRNAs. Consequently, disrupted midline patterning and resultant randomization of left-right asymmetry are observed in Setdb2-deficient embryos. These characteristic changes induced by Setdb2 deficiency can be nearly corrected by either overexpression of a dominant-negative fgf receptor or knockdown of fgf8, suggesting an essential role for Setdb2-Fgf8 signaling in restricting dorsal organizer territory and regulating left-right asymmetry. These results provide unique evidence that a SET domain-containing protein potentially involved in the epigenetic control negatively regulates dorsal organizer formation during early embryonic development.