Gene replacement (GR) via homologous recombination is a powerful tool for genome editing. Recently, direct GR is achieved successfully by coinjection of mRNAs for engineered endonucleases such as zinc finger nucleases (ZFNs) and donor DNA in developing embryos of diverse organisms. Here, we report the procedures and efficiency for direct GR by using ZFNs in the fish medaka. Upon zygotic coinjection of mRNAs encoding ZFNs that target the gonad-specifically expressed gsdf locus, linear DNA of GR vector pGRgsdf containing the red fluorescent protein (rfp) gene flanked by two homology arms of similar to 1-kb each underwent GR via homologous recombination. Specifically, 15 of 231 adults from manipulated embryos contained a GR allele in the caudal fin, producing an efficiency of similar to 7 % for somatic GR. Progeny test revealed that two out of nine fertile fish containing the GR allele in the fin were capable of transmitting the GR allele to similar to 6 % of F1 generation at adulthood, generating an efficiency of similar to 22 % for germline transmission. Sequencing and Southern blotting validated precise GR. We show that the GR allele expressed a chimeric gsdf:rfp RNA between gsdf and cointegrated rfp specifically in the gonad, demonstrating recapitulation of endogenous RNA expression as predicted for the defined GR allele. Most importantly, RFP expression coincides faithfully with the gonad-specific gsdf expression in developing embryos and adults. These results demonstrate, for the first time, the feasibility and efficiency of ZFN-mediated precise GR directly in the developing embryo of medaka as a lower vertebrate model.