A cDNA clone, Vgr-2, with homology to certain members of the transforming growth factor-beta superfamily has been isolated from a mouse embryo cDNA library. The encoded protein shows significant similarity to members of the Vg-1/decapentaplegic/bone morphogenetic protein subgroup of the transforming growth factor-beta family. Within this group, Vgr-2 is more similar to Xenopus Vg-1 than to any other member so far isolated. The gene is expressed at highest levels during midgestation mouse development, and transcripts are localized by in situ hybridization to the osteogenic zone of developing bone. Vgr-2 is expressed in F9 teratocarcinoma cells, and its RNA levels are down-regulated within 24 h after differentiation with retinoic acid. The genomic organization of Vgr-2 and its location on mouse chromosome 6 are reported.