The Tet family of enzymes (Tet1/2/3) converts 5-methylcytosine (5mC) to 5-hydroxymethylcytosine (5hmC). Mouse embryonic stem cells (mESCs) highly express Tet1 and have an elevated level of 5hmC. Tet1 has been implicated in ESC maintenance and lineage specification in vitro but its precise function in development is not well defined. To establish the role of Tet1 in pluripotency and development, we have generated Tet1 mutant mESCs and mice. Tet1(-/-) ESCs have reduced levels of 5hmC and subtle changes in global gene expression, and are pluripotent and support development of live-born mice in tetraploid complementation assay, but display skewed differentiation toward trophectoderm in vitro. Tet1 mutant mice are viable, fertile, and grossly normal, though some mutant mice have a slightly smaller body size at birth. Our data suggest that Tet1 loss leading to a partial reduction in 5hmC levels does not affect pluripotency in ESCs and is compatible with embryonic and postnatal development.