Transforming growth factor beta family ligands are neutralized by a number of structurally divergent antagonists. Follistatin-type antagonists, which include splice variants of follistatin (FS288 and FS315) and follistatin-like 3 (FSTL3), have high affinity for activin A but differ in their affinity for other ligands, particularly bone morphogenetic proteins. To understand the structural basis for ligand specificity within FS-type antagonists, we determined the x-ray structure of activin A in complex with FSTL3 to a resolution of 2.5 A. Similar to the previously resolved FS.activin A structures, the ligand is encircled by two antagonist molecules blocking all ligand receptor-binding sites. Recently, the significance of the FS N-terminal domain interaction at the ligand type I receptor site has been questioned; however, our data show that for FSTL3, the N-terminal domain forms a more intimate contact with activin A, implying that this interaction is stronger than that for FS. Furthermore, binding studies revealed that replacing the FSTL3 N-terminal domain with the corresponding FS domain considerably lowers activin A affinity. Therefore, both structural and biochemical evidence support a significant interaction of the N-terminal domain of FSTL3 with activin A. In addition, structural comparisons with bone morphogenetic proteins suggest that the interface where the N-terminal domain binds may be the key site for determining FS-type antagonist specificity.