In Caenorhabditis elegans, germ granules called P granules are directly inherited from mother to daughter and segregate with the germ lineage as it separates from the soma during initial embryonic cell divisions. Here we define meg-1 and meg-2 (maternal-effect germ-cell defective), which are expressed in the maternal germline and encode proteins that localize exclusively to P granules during embryonic germline segregation. Localization of MEG-1 to P granules depends upon the membrane-bound protein MES-1. meg-1 mutants exhibit multiple germline defects: P-granule mis-segregation in embryos, underproliferation and aberrant P-granule morphology in larval germ cells, and ultimately, sterility as adults. The penetrance of meg-1 phenotypes increases when meg-2 is also absent. Loss of the P-granule component pgl-1 in meg-1 mutants increases germ-cell proliferation, while loss of glh-1 decreases proliferation. Because meg-1 is provided maternally but its action is required in the embryonic germ lineage during segregation from somatic lineages, it provides a critical link for ensuring the continuity of germline development from one generation to the next.