The zebrafish DVR-1 (zDVR-1) gene, like Xenopus Vg1, is present maternally as an unprocessed precursor protein which is distributed ubiquitously along the future dorsoventral axis. Also, like Vg1, overexpression of zDVR-1 in zebrafish directs synthesis of more precursor, but no processed protein. However, the native zDVR-1 precursor is processed to mature protein when expressed in Xenopus. Like processed Vg1, mature zDVR-1 is a potent inducer of axial mesoderm. The parallels in expression pattern, apparent regulation of protein processing, and mesoderm-inducing activity support the hypothesis that localized protein processing controls production of a dorsal mesoderm inducer in these two species. Furthermore, using mutant mRNAs, we show that cleavage site sequences of the precursor protein are important in regulating protein processing.