Transcription of the early response gene XFD-1' (XFKH1) in the dorsal lip (Spemann organizer) of Xenopus embryos is activated by dorsal mesoderm inducing factors. Promoter studies revealed the presence of an activin A response element (ARE) which is both necessary and sufficient for transcriptional activation of reporter genes in animal cap explants incubated with activin A. Surprisingly, this ARE is also active within vegetal explants in the absence of exogenously added inducers, but an additional inhibitory response element prevents transcription of the XFD-1' gene in the ventral/vegetal region of the embryo in vivo. This element is located upstream of the ARE, it responds to bone morphogenic proteins 2 and 4 (BMP-2/4) triggered signals and it overrides the activating properties of the ARE. Expression patterns of BMP-2 and BMP-4 in the late blastula stage embryo and, especially, their absence from the dorsal blastopore lip may thus control the spatial transcription of the XFD-1' gene. Accordingly, the temporal activation and the spatial restriction of XFD-1' gene activity to the Spemann organizer is regulated by antagonistic actions of two distinct members of the TGF-beta family (activin and BMP) which act on different promoter elements.