We reviewed cell differentiation and morphogenesis by mesoderm-inducing factors during amphibian embryogenesis. Recently, two kinds of growth factors, activin and FGF, have been identified as influential candidates for natural mesoderm-inducing factor in amphibian development. These factors are present in early Xenopus embryos. In particular, activin has been shown to induce many kinds of mesodermal tissues in a dose-dependent manner. Activin-treated ectodermal sheet (animal cap) acts as an organizer causing gene expression, mesoderm formation and functional events such as secondary axis formation. Follistatin, an activin-specific binding protein, also present in the early Xenopus embryo, makes a complex with activin. Follistatin protein exerts no inducing activity of Xenopus animal cap. Endogenous follistatin may, however, play the role of an activin regulation factor. Endogenous actions of activin and FGF were studied using injection of their receptor mRNAs. Disruption of the FGF signaling pathway by its non-functional dominant negative receptors produced trunk and tail defects. In the case of activin, an embryo cannot form axial structures. Animal-half blastomeres from the late 8-cell stage Xenopus embryo respond to activin, and there are prepatterns in ventral and dorsal cells from very early stages. The timing of mesoderm induction during development and the relationship between the inducing factors and competent cells are discussed in this report. Differentiation of tissues and organized formation of organs can be understood as a system of serial inductive reactions originating from the organizer. We have attempted to construct a model of organizer formation based on the results of recent studies.