The histone-modifying complexes PRC2 and TrxG/MLL play pivotal roles in determining the activation state of genes controlling pluripotency, lineage commitment, and cell differentiation. Long noncoding RNAs (lncRNAs) can bind to either complex, and some have been shown to act as modulators of PRC2 or TrxG/MLL activity. Here we show that the lateral mesoderm-specific lncRNA Fendrr is essential for proper heart and body wall development in the mouse. Embryos lacking Fendrr displayed upregulation of several transcription factors controlling lateral plate or cardiac mesoderm differentiation, accompanied by a drastic reduction in PRC2 occupancy along with decreased H3K27 trimethylation and/or an increase in H3K4 trimethylation at their promoters. Fendrr binds to both the PRC2 and TrxG/MLL complexes, suggesting that it acts as modulator of chromatin signatures that define gene activity. Thus, we identified an lncRNA that plays an essential role in the regulatory networks controlling the fate of lateral mesoderm derivatives.