We provide a comparative analysis of the expression patterns and ventral mesoderm-inducing properties of Xenopus BMP-2 and BMP-4. Transcripts for BMP-2 and BMP-4 are maternally stored in eggs, and zygotic expression of these genes is uniform in the ectoderm and mesoderm in late blastulae. During gastrulation, BMP-2 is expressed at a low level throughout the ectoderm and marginal zone, but at early neurula stages a patch of dorso-anterior cells displays enhanced expression. In contrast, BMP-4 transcripts are restricted to the ventrolateral marginal zone during gastrulation, and in late gastrula and early neurula BMP-4 is expressed in the epidermis but not the neural plate. At post-neurula stages, BMP-2 and BMP-4 transcripts are associated with a variety of mesodermal structures, including the pharyngeal pouches, heart, blood island, and blastopore. At tailbud stages, BMP-2 and BMP-4 are expressed in neural tissues including the neural tube and brain. In mesoderm induction assays, BMP-2 and BMP-4 induce Xhox3, an early ventral-posterior mesoderm marker, and larval alpha Tl globin, a marker for red blood cells. Induction of red blood cells in response to BMP-4 was demonstrated by staining with a hemoglobin-specific reagent. Little is known about factors that induce hematopoietic lineages in vertebrates, and these results provide evidence linking BMP activity and blood differentiation. Globin induction by BMP-2 and BMP-4 is blocked by co-expression of a dominant-negative activin receptor, suggesting that either endogenous activin signals are required for BMP-mediated induction, or that the truncated activin receptor interferes with signaling by BMP receptors. In assays on marginal zone explants, we demonstrate that BMP-4 respecifies dorsal mesoderm to form ventral mesoderm, consistent with its ability to induce blood and to ventralize embryos. BMP-2, however, does not display such activity. The findings extend and support evidence that BMP-2 and BMP-4 function in ventral mesoderm induction and patterning in Xenopus. Our data furthermore highlight the multiple functions these factors fulfill during early vertebrate embryogenesis.