An antagonistic relationship between inhibin and activin is essential to the control of pituitary FSH release and to normal gonadal function. Two inhibin ligands, inhibin A and inhibin B, are made by the ovary in females, and each regulate pituitary FSH at different times during the reproductive cycle. Inhibin B, but not inhibin A, is produced by the testes and is therefore responsible for all inhibin-dependent FSH regulation in males. Although the activin signal transduction pathway has been well characterized, little is known about the mechanism of inhibin signaling and its relationship to activin antagonism. A recently cloned inhibin-binding protein, InhBP (p120), associates strongly with the type IB activin receptor (Alk4) in a ligand-responsive manner and interacts to a lesser extent with other activin and bone morphogenetic protein (BMP) type I and activin type II receptors. Activin stimulates the association of InhBP and Alk4, and inhibin B, but not inhibin A, interferes with InhBP-Alk4 complex formation. InhBP is necessary to mediate a specific antagonistic effect of inhibin B on activin-stimulated transcription. Appropriate stoichiometry between InhBP and the activin type I receptor is crucial to InhBP function. These findings suggest that InhBP is an inhibin B-specific receptor that mediates antagonism of activin signal transduction through the modulation of activin heteromeric receptor complex assembly.