Patterning of the pre-gastrula embryo and subsequent neural induction post-gastrulation are very complex and intricate processes of which little, until recently, has been understood. The earliest decision in neural development, the choice between epidermal or neural fates, is regulated by bone morphogenetic protein (BMP) signaling within the ectoderm. Inhibition of BMP signaling is sufficient for neural induction. Many secreted BMP inhibitors are expressed exclusively within the organizer of the Xenopus gastrula embryo and therefore are predicted to act as bona fide endogenous neural inducers. Other cell-autonomous inhibitors of the BMP pathway are more widely expressed, such as the inhibitory Smads, Smad6 and Smad7. In this report we describe the biological and biochemical characterization of 51-B6, a novel member of Cerberus/Dan family of secreted BMP inhibitors, which we identified in a screen for Smad7-induced genes. This gene is expressed maternally in an animal to vegetal gradient, and its expression levels decline rapidly following gastrulation. In contrast to known BMP inhibitors, 51-B6 is broadly expressed in the ectoderm until the end of gastrulation. The timing, pattern of expression, and activities of this gene makes it unique when compared to other BMP/TGFbeta/Wnt secreted inhibitors which are expressed only zygotically and maintained post-gastrulation. We propose that a function of 51-B6 is to block BMP and TGFbeta signals in the ectoderm in order to regulate cell fate specification and competence prior to the onset of neural induction. In addition, we demonstrate that 51-B6 can act as a neural inducer and induce ectopic head-like structures in neurula staged embryos. Because of this embryological activity, we have renamed this clone Coco, after the Spanish word meaning head.