Members of the transforming growth factor-beta (TGF-beta) superfamily, including TGF-beta, bone morphogenetic proteins (BMPs), activins and nodals, are vital for regulating growth and differentiation. These growth factors transduce their signals through pairs of transmembrane type I and type II receptor kinases. Here, we have cloned a transmembrane protein, BAMBI, which is related to TGF-beta-family type I receptors but lacks an intracellular kinase domain. We show that BAMBI is co-expressed with the ventralizing morphogen BMP4 (refs 5, 6) during Xenopus embryogenesis and that it requires BMP signalling for its expression. The protein stably associates with TGF-beta-family receptors and inhibits BMP and activin as well as TGF-beta signalling. Finally, we provide evidence that BAMBI's inhibitory effects are mediated by its intracellular domain, which resembles the homodimerization interface of a type I receptor and prevents the formation of receptor complexes. The results indicate that BAMBI negatively regulates TGF-beta-family signalling by a regulatory mechanism involving the interaction of signalling receptors with a pseudoreceptor.