Bone morphogenetic protein 4 (BMP-4) induces ventral mesoderm but represses dorsal mesoderm formation in Xenopus embryos. We show that BMP-4 inhibits two signaling pathways regulating dorsal mesoderm formation, the induction of dorsal mesoderm (Spemann organizer) and the dorsalization of ventral mesoderm. Ectopic expression of BMP-4 RNA reduces goosecoid and forkhead-1 transcription in whole embryos and in activin-treated animal cap explants. Embryos and animal caps overexpressing BMP-4 transcribe high levels of genes expressed in ventral mesoderm (Xbra, Xwnt-8, Xpo, Mix.1, XMyoD). The Spemann organizer is ventralized in these embryos; abnormally high levels of Xwnt-8 mRNA and low levels of goosecoid mRNA are detected in the organizer. In addition, the organizer loses the ability to dorsalize neighboring ventral marginal zone to muscle. Overexpression of BMP-4 in ventral mesoderm inhibits its response to dorsalization signals. Ventral marginal zone explants ectopically expressing BMP-4 form less muscle when treated with soluble noggin protein or when juxtaposed to a normal Spemann organizer in comparison to control explants. Endogenous BMP-4 transcripts are downregulated in ventral marginal zone explants dorsalized by noggin, in contrast to untreated explants. Thus, while BMP-4 inhibits noggin protein activity, noggin downregulates BMP-4 expression by dorsalizing ventral marginal zone to muscle. Noggin and BMP-4 activities may control the lateral extent of dorsalization within the marginal zone. Competition between these two molecules may determine the final degree of muscle formation in the marginal zone, thus defining the border between dorsolateral and ventral mesoderm.