Three classes of signaling molecule, VG1, WNT and BMP, play crucial roles in axis formation in the chick embryo. Although VG1 and WNT signals have a pivotal function in inducing the primitive streak and Hensen's node in the embryo midline, their action is complemented by that of BMP antagonists that protect the prospective axial tissue from the inhibitory influence of BMPs secreted from the periphery. We have previously reported that a secreted factor, chick Tsukushi (TSK), is expressed in the primitive streak and Hensen's node, where it works as a BMP antagonist. Here, we describe a new crucial function for TSK in promoting formation of the primitive streak and Hensen's node by positively regulating VG1 activity. We provide evidence that TSK directly binds VG1 in vitro, and that TSK and VG1 functionally interact in axis formation, as shown by biological assays performed in chick and Xenopus embryos. Furthermore, we show that alternative splicing of TSK RNA leads to the formation of two isoforms (TSKA, originally designated as TSK, and TSKB) that differ in their C-terminal region. Biochemical and biological assays indicate that TSKB is a much weaker BMP antagonist than TSKA, although both isoforms efficiently interact with VG1. Remarkably, although both TSKA and TSKB are expressed throughout the early extending primitive streak, their expression patterns diverge during gastrulation. TSKA expression concentrates in Hensen's node, a well-known source of anti-BMP signals, whereas TSKB accumulates in the middle primitive streak (MPS), a region known to work as a node-inducing center where VG1 expression is also specifically localized. Loss-of-function experiments demonstrate that TSKB, but not TSKA, function is required in the MPS for induction of Hensen's node. Taken together, these results indicate that TSK isoforms play a crucial role in chick axis formation by locally modulating VG1 and BMP activities during gastrulation.