The earliest decision in vertebrate neural development is the acquisition of a neural identity by embryonic ectodermal cells. The default model for neural induction postulates that neural fate specification in the vertebrate embryo occurs by inhibition of epidermal inducing signals in the gastrula ectoderm. Bone morphogenetic proteins (BMPs) act as epidermal inducers, and all identified direct neural inducers block BMP signaling either intra- or extracellularly. Although the mechanism of action of the secreted neural inducers has been elucidated, the relevance of intracellular BMP inhibitors in neural induction is not clear. In order to address this issue and to identify downstream targets after BMP inhibition, we have monitored the transcriptional changes in ectodermal explants neuralized by Smad7 using a Xenopus laevis 5000-clone gastrula-stage cDNA microarray. We report the identification and initial characterization of 142 genes whose transcriptional profiles change in the neuralized explants. In order to address the potential involvement during neural induction of genes identified in the array, we performed gain-of-function studies in ectodermal explants. This approach lead to the identification of four genes that can function as neural inducers in Xenopus and three others that can synergize with known neural inducers in promoting neural fates. Based on these studies, we propose a role for post-transcriptional control of gene expression during neural induction in vertebrates and present a model whereby sustained BMP inhibition is promoted partly through the regulation of TGFbeta activated kinase (TAK1) activity by a novel TAK1-binding protein (TAB3).