Gli-type zinc finger proteins play important regulatory roles in vertebrate and invertebrate embryogenesis. In Xenopus, the Gli-type proteins XGli-3 and XGli-4 are first expressed in earliest stages of mesoderm and neural development. Transient transfection assays reveal that XGli-3 and XGli-4 can function as transcription repressors. Counteracting the Gli-protein repressor activity by ectopic expression of a fusion protein that contains the Gli-zinc finger cluster connected to the E1A activator domain in Xenopus embryos results in specific morphological alterations in the developing somites and in the central nervous system. Altered expression characteristics for a broad set of molecular markers highlighting specific aspects of mesodermal and neural differentiation demonstrate an important role for Gli-type zinc finger proteins in the early mesodermal and neural patterning of Xenopus embryos.