In this paper, we study the mechanism by which a Xenopus cell line-derived mesoderm-inducing factor (MIF) might establish the spatial pattern of cellular differentiation in the mesoderm. The effects of the factor on competent animal pole tissue are consistent with it being identical to the natural mesoderm-inducing factor. The signal can only act on those membrane domains of the animal pole that face the blastocoel, but it can be stably recorded there, such that axial mesoderm is formed, after 15 min exposure or less. This exposure can end some hours, or several cell cycles, before the onset of RNA synthesis yet nevertheless be fully effective, although competence to respond also extends well after the onset of transcription. Exposure of the entire blastocoel lining of intact embryos to MIF causes a synchronous and sudden transformation of the behaviour and adhesive properties of all inner animal cap cells. This transformation mimics and is contemporaneous with the involution behaviour of normal mesoderm in the early gastrula marginal zone. Although high concentrations of MIF totally disorganize gastrulation, lower concentrations permit gastrulation to proceed. However, the pattern of mesoderm in these embryos is disrupted and ectopic mesoderm is formed around the blastocoel remnant. When MIF is injected directly into blastomeres, rather than into the blastocoel, it has no effect. This suggests that the molecule is secreted from source cells and affects target cells through an extracellular receptor. Finally, we show that small pieces of animal pole tissue recently exposed to MIF go on to produce morphogenetic signals perhaps distinct from MIF. We discuss the role of these signals in establishing and modifying the spatial pattern of cellular differentiation in the mesoderm of Xenopus.