Controlling the duration of a signalling process in development by loss of competence is important because too strong an induction can change cell fate. To understand some of the mechanisms that underlie loss of competence, we have analysed the transduction of transforming growth factor-beta (TGF-beta) signalling during mesoderm formation, which is thought to be induced by TGF-beta-like signalling, in embryos of the frog Xenopus laevis. Here we show that gastrula ectoderm has the ability to express mesodermal marker genes in response to the TGF-beta signalling molecule activin for many hours, but then loses this ability within 1 h for all mesodermal genes tested. This loss of mesodermal competence correlates with the inability of Smad2, the principal intracellular signal transducer of activin, to accumulate in the nucleus. Mutating three phosphorylation sites within Smad2 abrogates the temporal restriction of Smad2 to accumulate in the nucleus. Overexpression of this mutant form of Smad2 can prolong the competence of endogenous mesodermal genes to respond to activin signalling. Thus, restricting the subcellular localization of an intracellular signal transducer constitutes a mechanism that leads to loss of mesodermal competence. This mechanism operates within less than an hour, and is therefore well suited to control an orderly sequence of inductions.