Vg1 is a TGF beta-related growth factor encoded by a maternal mRNA localized to vegetal blastomeres in Xenopus embryos. Vg1 precursor protein is abundant in vegetal cells, but the processed mature form has not been readily detected and no activity has been demonstrated for the putative Vg1 mature protein. We have engineered a BMP2-Vg1 fusion (BVg1) that promotes formation of mature Vg1 protein in vivo. Injection of BVg1 mRNA induces dorsal mesoderm in animal cap cells, and BVg1 expression in ultraviolet-ventralized embryos fully restores a normal dorsal axis. Blastomeres expressing BVg1 act as a Nieuwkoop center, the region that induces the Spemann organizer. our results lead us to suggest that localized posttranslational processing of Vg1 precursor protein on the future dorsal side of the embryo is a key step in generating dorsal mesoderm and the body axis in Xenopus.