Animal embryogenesis requires a precise coordination between morphogenesis and cell fate specification. During mesoderm induction, mesodermal fate acquisition is tightly coordinated with the morphogenetic process of epithelial-to-mesenchymal transition (EMT). In zebrafish, cells exist transiently in a partial EMT state during mesoderm induction. Here, we show that cells expressing the transcription factor Sox2 are held in the partial EMT state, stopping them from completing the EMT and joining the mesoderm. This is critical for preventing the formation of ectopic neural tissue. The mechanism involves synergy between Sox2 and the mesoderm-inducing canonical Wnt signaling pathway. When Wnt signaling is inhibited in Sox2-expressing cells trapped in the partial EMT, cells exit into the mesodermal territory but form an ectopic spinal cord instead of mesoderm. Our work identifies a critical developmental checkpoint that ensures that morphogenetic movements establishing the mesodermal germ layer are accompanied by robust mesodermal cell fate acquisition.