Neural differentiation is induced by inhibition of BMP signaling. Secreted inhibitors of BMP such as Chordin from the Spemann organizer contribute to the initial step of neural induction. Xenopus Smad-interacting protein-1 gene (XSIP1) is expressed in neuroectoderm from the early gastrula stage through to the neurula stage. XSIP1 is able to inhibit BMP signaling and overexpression of XSIP1 induces neural differentiation. To clarify the function of XSIP1 in neural differentiation, we performed a loss-of-function study of XSIP1. Knockdown of XSIP1 inhibited SoxD expression and neural differentiation. These results indicate that XSIP1 is essential for neural induction. Furthermore, loss-of-function experiments showed that SoxD is essential for XSIP1 transcription and for neural differentiation. However, inhibition of XSIP1 translation prevented neural differentiation induced by SoxD; thus, SoxD was not sufficient to mediate neural differentiation. Expression of XSIP1 was also required for inhibition of BMP signaling. Together, these results suggest that XSIP1 and SoxD interdependently function to maintain neural differentiation.