The zebrafish (Danio rerio) is increasingly being used to study basic vertebrate biology and human disease with a rich array of in vivo genetic and molecular tools. However, the inability to readily modify the genome in a targeted fashion has been a bottleneck in the field. Here we show that improvements in artificial transcription activator-like effector nucleases (TALENs) provide a powerful new approach for targeted zebrafish genome editing and functional genomic applications. Using the GoldyTALEN modified scaffold and zebrafish delivery system, we show that this enhanced TALEN toolkit has a high efficiency in inducing locus-specific DNA breaks in somatic and germline tissues. At some loci, this efficacy approaches 100%, including biallelic conversion in somatic tissues that mimics phenotypes seen using morpholino-based targeted gene knockdowns. With this updated TALEN system, we successfully used single-stranded DNA oligonucleotides to precisely modify sequences at predefined locations in the zebrafish genome through homology-directed repair, including the introduction of a custom-designed EcoRV site and a modified loxP (mloxP) sequence into somatic tissue in vivo. We further show successful germline transmission of both EcoRV and mloxP engineered chromosomes. This combined approach offers the potential to model genetic variation as well as to generate targeted conditional alleles.