Members of the Xvent-2 homeodomain transcription factor family are immediate response genes of BMP-4 signaling. The bone morphogenetic protein response element (BRE) of Xvent-2B was previously identified and characterized with respect to Smad1 and Smad4 binding sites. In this study, we further report on the transcriptional regulation of Xvent-2B. We provide evidence that Xvent-2B (Xvent-2) maintains its own expression through autoregulation. This activity was demonstrated for the endogenous gene by reverse transcriptase-PCR analysis and was found to be insensitive to cycloheximide. Localized by DNase I footprinting were several Xvent-2 binding sites within the proximal upstream region including the BRE. In the early Xenopus embryo, the BRE was shown to be sufficient to drive expression of a green fluorescent protein reporter in a similar pattern compared with the endogenous gene. Furthermore, Xvent-2B was able to activate the BRE in luciferase reporter assays, and in co-injection experiments Xvent-2B and Smad1 were found to synergistically activate the BRE. Moreover, glutathione S-transferase pull-down experiments demonstrated that Xvent-2B directly and specifically interacts with Smad1. This association was mediated by the MH1 domain of Smad1 and required the C-terminal domain of Xvent-2. The failure of an Xvent-2 mutant lacking the C terminus to stimulate the BRE underlines the significance of the C-terminal domain in the described autoregulatory loop.