The mechanism by which epithelial cells undergo directed rearrangement is central to morphogenesis, yet the regulation of these movements remains poorly understood. We have investigated epithelial cell rearrangement (intercalation) in the dorsal hypodermis, or embryonic epidermis, of the C. elegans embryo by analyzing the die-1(w34) mutant, which fails to undergo normal intercalation. Dorsal hypodermal cells of die-1(w34) homozygous embryos initiate but fail to complete the process of intercalation. Multiphoton microscopy reveals that intercalating cells extend monopolar, basolateral protrusions in their direction of migration; posterior dorsal hypodermal cells in die-1(w34) mutants appear to extend protrusions normally, but fail to translocate their cell bodies to complete rearrangement. Despite abnormal intercalation, the subsequent morphogenetic movements that enclose the embryo with epithelial cells and the process of dorsal cell fusion still occur. However, elongation of the embryo into a wormlike shape is disrupted in die-1(w34) embryos, suggesting that intercalation may be necessary for subsequent elongation of the embryo. Actin filaments are not properly organized within the dorsal hypodermis of die-1(w34) embryos, consistent with intercalation's being a necessary prerequisite for elongation. The die-1 gene encodes a C2H2 zinc finger protein containing four fingers, which likely acts as a transcriptional regulator. DIE-1 is present in the nuclei of hypodermal, muscle, gut, and pharyngeal cells; its distribution suggests that DIE-1 acts in each of these tissues to regulate morphogenetic movements. die-1(w34) mutants display morphogenetic defects in the pharynx, gut, and muscle quadrants, in addition to the defects in the dorsal hypodermis, consistent with the DIE-1 expression pattern. Mosaic analysis indicates that DIE-1 is autonomously required in the posterior dorsal hypodermis for intercalation. Our analysis documents for the first time the dynamics of protrusive activity during epithelial cell rearrangement. Moreover, our analysis of die-1 shows that the events of epithelial cell rearrangement are under transcriptional control, and that early and later phases of epithelial cell rearrangement are genetically distinguishable.