In early development much of the cellular diversity and pattern formation of the embryo is believed to be set up by morphogens. However, for many morphogens, including members of the TGF-beta superfamily, the mechanism(s) by which they reach distant cells is unknown. We have used immunofluorescence to detect, at single cell resolution, a morphogen gradient formed across vertebrate tissue. The TGF-beta ligand is distributed in a gradient visible up to 7 cell diameters (about 150-200 microm) from its source, and is detectable only in the extracellular space. This morphogen gradient is functional, since we demonstrate activation of a high response gene (Xeomes) and a low-response gene (Xbra) at different distances from the TGF-beta source. Expression of the high affinity type II TGF-beta receptor is necessary for detection of the gradient, but the shape of the gradient formed only depends in part on the spatial variation in the amount of receptor. Finally, we demonstrate that the molecular processes that participate in forming this functional morphogen gradient are temperature independent, since the gradient forms to a similar extent whether the cells are maintained at 4 degrees C or 23 degrees C. In contrast, TGF-beta1 internalisation by cells of the Xenopus embryo is a temperature-dependent process. Our results thus suggest that neither vesicular transcytosis nor other active processes contribute to a significant extent to the formation of the morphogen gradient we observe. We conclude that, in the model system used here, a functional morphogen gradient can be formed within a few hours by a mechanism of passive diffusion.