Dorsal-ventral patterning in vertebrate embryos is regulated by members of the TGF-beta family of growth and differentiation factors. In Xenopus the activins and Vg1 are potent dorsal mesoderm inducers while members of the bone morphogenetic protein (BMP) subclass pattern ventral mesoderm and regulate ectodermal cell fates. Receptors for ligands in the TGF-beta superfamily are serine-threonine kinases, but little is known about the components of the signal transduction pathway leading away from these receptors. In Drosophila the decapentaplegic protein (dpp), a homolog of vertebrate BMP-2 and BMP-4, functions in dorsal-ventral axial patterning, and a genetic screen for components involved in signaling by dpp has identified a gene named mothers against decapentaplegic (Mad). Mad encodes a unique, predicted cytoplasmic, protein containing no readily identified functional motifs. This report demonstrates that a gene closely related to Drosophila Mad exists in Xenopus (called XMad) and it exhibits activities consistent with a role in BMP signaling. XMad protein induces ventral mesoderm when overexpressed in isolated animal caps and it ventralizes embryos. Furthermore, XMad rescues phenotypes generated by a signaling-defective, dominant-negative, BMP-2/4 receptor. These results furnish evidence that XMad protein participates in vertebrate embryonic dorsal-ventral patterning by functioning in BMP-2/4 receptor signal transduction.