Growth factor-mediated signaling has been implicated in the regulation of epithelial-mesenchymal interactions during organogenesis. Bone morphogenetic protein 4 (BMP-4), a member of the transforming growth factor beta superfamily, is expressed in the presumptive dental epithelium at the initiation of tooth development. Subsequently, epithelial signaling leads to mesenchymal induction of BMP-4 expression. To address the role of this factor, BMP-4-releasing agarose beads were added to dental mesenchyme in culture. These beads induced a translucent mesenchymal zone similar to that induced by dental epithelium. Moreover, three transcription factors (Msx-1, Msx-2, and Egr-1) whose expression is governed by epithelial signaling were induced in response to BMP-4. In addition, BMP-4 induced its own mesenchymal expression. These findings support the hypothesis that BMP-4 mediates epithelial-mesenchymal interactions during early tooth development.