The regulation of signaling pathways by feedback inhibitors has become an emerging theme in the control of pattern formation during development. Nodal and Lefty proteins belong to divergent subfamilies of the TGF-beta family. Nodal signals promote mesendoderm induction in vertebrates, and Lefty proteins antagonize it. In zebrafish, Squint functions as a long-range Nodal signal during mesoderm induction. We report that the range over which Squint induces mesoderm is reduced by Lefty proteins. In contrast, the activity range of the short-range Nodal signal Cyclops is not regulated by Lefty activity. We present three lines of evidence that Lefty proteins diminish the range of Squint signaling by acting not only as antagonists of Squint autoregulation but also as long-range inhibitors of Squint activity. First, Lefty can block Nodal signaling at a distance. Second, Lefty regulates the range of Squint signaling before regulating squint expression. Third, Lefty restricts the range of Squint activity in squint mutant embryos, in which the endogenous gene is not subject to autoregulation. We also find that Lefty restricts the response to both high and low levels of Nodal signaling. These results indicate that Lefty proteins restrict the activity range of Nodal signals by dampening Nodal signaling in surrounding cells.