The zygotic dorsal-ventral patterning gene tolloid (tld) exhibits a complex structure consisting of an N-terminal domain with sequence similarity to the astacin family of metalloproteases and a C-terminal domain composed of two EGF-like repeats and five copies of the CUB repeat which was first found in human complement proteins C1r and C1s. The overall structure of TLD is similar to the human bone morphogenetic protein, BMP-1. Previous genetic studies (Ferguson and Anderson, 1992) have shown that certain tld alleles behave antagonistically toward decapentaplegic (dpp), a second zygotic dorsal-ventral patterning gene whose product is most closely related to the TGF-beta superfamily members BMP-2 and BMP-4. The common phenotype and genetic interaction data may suggest a direct physical association between these two proteins. In this study, we use an allelic series of haplo-viable dpp mutations to order the strength of the tld antagonistic interaction. In addition, we have identified the lesions associated with 20 tld mutations by DNA sequencing. These mutations consist of six alleles that behave in an antimorphic manner with respect to dpp, five alleles that revert the antagonistic interaction, and 9 loss-of-function alleles with a range of phenotypes from weak to strong. We find that antimorphic mutations and second-site revertants cluster to the protease domain and to a second site located at the junction of the first two CUB repeats. In contrast, loss-of-function mutations are dispersed throughout the length of the protein. Those mutations that map within the CUB repeats invariably affect consensus residues, thereby establishing the functional significance of certain residues in the CUB repeat consensus sequence. Possible molecular models for TLD action are discussed.