Vg1, a member of the TGF-beta superfamily of ligands, has been implicated in the induction of mesoderm, formation of primitive streak, and left-right patterning in Xenopus and chick embryos. In mice, GDF1 and GDF3 - two TGF-beta superfamily ligands that share high sequence identity with Vg1 - have been shown to independently mimic distinct aspects of Vg1's functions. However, the extent to which the developmental processes controlled by GDF1 and GDF3 and the underlying signaling mechanisms are evolutionarily conserved remains unclear. Here we show that phylogenetic and genomic analyses indicate that Gdf1 is the true Vg1 ortholog in mammals. In addition, and similar to GDF1, we find that GDF3 signaling can be mediated by the type I receptor ALK4, type II receptors ActRIIA and ActRIIB, and the co-receptor Cripto to activate Smad-dependent reporter genes. When expressed in heterologous cells, the native forms of either GDF1 or GDF3 were incapable of inducing downstream signaling. This could be circumvented by using chimeric constructs carrying heterologous prodomains, or by co-expression with the Furin pro-protein convertase, indicating poor processing of the native GDF1 and GDF3 precursors. Unexpectedly, co-expression with Nodal - another TGF-beta superfamily ligand involved in mesoderm formation - could also expose the activities of native GDF1 and GDF3, suggesting a potentially novel mode of cooperation between these ligands. Functional complementarity between GDF1 and GDF3 during embryonic development was investigated by analyzing genetic interactions between their corresponding genes. This analysis showed that Gdf1(-/-);Gdf3(-/-) compound mutants are more severely affected than either Gdf1(-/-) or Gdf3(-/-) single mutants, with defects in the formation of anterior visceral endoderm and mesoderm that recapitulate Vg1 loss of function, suggesting that GDF1 and GDF3 together represent the functional mammalian homologs of Vg1.