The endocardium is the endothelial component of the vertebrate heart and plays a key role in heart development. Where, when, and how the endocardium segregates during embryogenesis have remained largely unknown, however. We now show that Nkx2-5+ cardiac progenitor cells (CPCs) that express the Sry-type HMG box gene Sox17 from embryonic day (E) 7.5 to E8.5 specifically differentiate into the endocardium in mouse embryos. Although Sox17 is not essential or sufficient for endocardium fate, it can bias the fate of CPCs toward the endocardium. On the other hand, Sox17 expression in the endocardium is required for heart development. Deletion of Sox17 specifically in the mesoderm markedly impaired endocardium development with regard to cell proliferation and behavior. The proliferation of cardiomyocytes, ventricular trabeculation, and myocardium thickening were also impaired in a non-cell-autonomous manner in the Sox17 mutant, likely as a consequence of down-regulation of NOTCH signaling. An unknown signal, regulated by Sox17 and required for nurturing of the myocardium, is responsible for the reduction in NOTCH-related genes in the mutant embryos. Our results thus provide insight into differentiation of the endocardium and its role in heart development.