Thrombomodulin (TM) is a widely expressed glycoprotein receptor that plays a physiologically important role in maintaining normal hemostatic balance postnatally. Inactivation of the TM gene in mice results in embryonic lethality without thrombosis, suggesting that structures of TM not recognized to be involved in coagulation might be critical for normal fetal development. Therefore, the in vivo role of the cytoplasmic domain of TM was studied by using homologous recombination in ES cells to create mice that lack this region of TM (TMcyt/cyt). Cross-breeding of F1 TMwt/cyt mice (1 wild-type and 1 mutant allele) resulted in more than 300 healthy offspring with a normal Mendelian inheritance pattern of 25.7% TMwt/wt, 46.6% TMwt/cyt, and 27.7% TMcyt/cyt mice, indicating that the tail of TM is not necessary for normal fetal development. Phenotypic analyses showed that the TMcyt/cyt mice responded identically to their wild-type littermates after procoagulant, proinflammatory, and skin wound challenges. Plasma levels of plasminogen, plasminogen activator inhibitor 1 (PAI-1), and 2-antiplasmin were unaltered, but plasmin:2-antiplasmin (PAP) levels were significantly lower in TMcyt/cyt mice than in TMwt/wt mice (0.46 ± 0.2 and 1.99 ± 0.1 ng/mL, respectively; P < .001). Tissue levels of TM antigen were also unaffected. However, functional levels of plasma TM in the TMcyt/cyt mice, as measured by thrombin-dependent activation of protein C, were significantly increased (P < .001). This supported the hypothesis that suppression in PAP levels may be due to augmented activation of thrombin-activatable fibrinolysis inhibitor (TAFI), with resultant inhibition of plasmin generation. In conclusion, these studies exclude the cytoplasmic domain of TM from playing a role in the early embryonic lethality of TM-null mice and support its function in regulating plasmin generation in plasma.