Within the TGF-beta superfamily, there are approximately forty ligands divided into two major branches: the TGF-beta/Activin/Nodal ligands and the BMP/GDF ligands. We studied the ligand GDF3 and found that it inhibits signaling by its co-family members, the BMPs; however, GDF3 has been described by others to have Nodal-like activity. Here, we show that GDF3 can activate Nodal signaling, but only at very high doses and only upon mRNA over-expression. In contrast, GDF3 inhibits BMP signaling upon over-expression of GDF3 mRNA, as recombinant protein, and regardless of its dose. We therefore further characterized the mechanism through which GDF3 protein acts as a specific BMP inhibitor and found that the BMP inhibitory activity of GDF3 resides redundantly in the unprocessed, predominant form and in the mature form of the protein. These results confirm and extend the activity that we described for GDF3 and illuminate the experimental basis for the different observations of others. We suggest that GDF3 is either a bi-functional TGF-beta ligand, or, more likely, that it is a BMP inhibitor that can artificially activate Nodal signaling under non-physiological conditions.