The role of the zebrafish transcription factor Nanog has been controversial. It has been suggested that Nanog is primarily required for the formation of the extraembryonic yolk syncytial layer (YSL) and only indirectly regulates gene expression in embryonic cells. By contrast, a more recent study has proposed that Nanog directly regulates transcription in embryonic cells during zygotic genome activation. To clarify the roles of Nanog, we performed a detailed analysis of zebrafish nanog mutants. While zygotic nanog mutants survive to adulthood, maternal-zygotic and maternal mutants exhibit developmental arrest at the blastula stage. In the absence of Nanog, the YSL fails to form and embryonic tissue detaches from the yolk. Zygotic transcription of a subset of embryonic genes is affected in nanog mutants but both the YSL and embryonic phenotype can be rescued by providing nanog mRNA in YSL precursors. Notably, nanog mutant cells transplanted into wild-type hosts proliferate and contribute to embryonic tissues from all germ layers. These results indicate that zebrafish Nanog is necessary for YSL formation but is not directly required for embryonic cell differentiation.