Mesoderm is initially induced in the amphibian embryo by events that occur in the early cleavage stages prior to the midblastula transition (MBT) and morphogenesis. These inductive interactions establish the mesoderm at the equator and create a distinction between the dorsal and the ventral regions. After the MBT, zygotic factors pattern the mesoderm and induce the neuroectoderm on the dorsal side of the embryo. Most previous studies have focused on the effects of signals originating in the dorsal mesoderm. We show that BMP-4 transcripts are localized to the ventral side of the gastrula embryo and provide evidence that localized expression of BMP-4 is important for regulating the expression of mesodermal and neural genes. We show that ectopic expression of BMP-4 inhibits the formation of dorsal and lateral mesoderm and reduces the size of the neural plate. Elimination of BMP-4 signaling with a dominant-negative BMP receptor expands the lateral mesoderm and neural plate without expanding the expression of genes along the dorsal midline. These results suggest that BMP-4 may act to oppose the action of dorsalizing signals and neural-inducing signals that originate in the dorsal organizer region. We suggest that BMP-4 may have an analogous role to the Drosophila gene, dpp, in dorsal/ventral pattern formation.