The vertebrate body plan is established during gastrulation, when cells move inwards to form the mesodermal and endodermal germ layers. Signals from a region of dorsal mesoderm, which is termed the organizer, pattern the body axis by specifying the fates of neighbouring cells. The organizer is itself induced by earlier signals. Although members of the transforming growth factor-beta (TGF-beta) and Wnt families have been implicated in the formation of the organizer, no endogenous signalling molecule is known to be required for this process. Here we report that the zebrafish squint (sqt) and cyclops (cyc) genes have essential, although partly redundant, functions in organizer development and also in the formation of mesoderm and endoderm. We show that the sqt gene encodes a member of the TGF-beta superfamily that is related to mouse nodal. cyc encodes another nodal-related proteins, which is consistent with our genetic evidence that sqt and cyc have overlapping functions. The sqt gene is expressed in a dorsal region of the blastula that includes the extraembryonic yolk syncytial layer (YSL). The YSL has been implicated as a source of signals that induce organizer development and mesendoderm formation. Misexpression of sqt RNA within the embryo or specifically in the YSL induces expanded or ectopic dorsal mesoderm. These results establish an essential role for nodal-related signals in organizer development and mesendoderm formation.