The genome of the protozoan parasite Giardia lamblia is organized in two diploid nuclei, which has so far precluded complete analysis of gene function. Here we use a previously developed Cre/loxP-based knock-out and selection marker salvage strategy in the human-derived isolate WB-C6 to eliminate all four copies of the Cyst-Wall-Protein-1 locus (CWP1). Because these loci are silenced in proliferating trophozoites and highly expressed only in encysting cells, CWP1 ablation allows functional characterization of a conditional phenotype in parasites induced to encyst. We show that encysting Δcwp1 cells are unable to establish the stage-regulated trafficking machinery with Golgi-like encystation-specific vesicles required for cyst-wall formation but show morphological hallmarks of cyst development and karyokinesis. This 'pseudocyst' phenotype is rescued by transfection of Δcwp1 cells with an episomally maintained CWP1 expression vector. Genome editing in genera Giardia and Trypanosoma are the only reported examples addressing questions on pathogen transmission within the Excavata supergroup.