Xvent-1 and Xvent-2 are members of a novel homeobox subfamily that have been implicated in dorsoventral patterning in Xenopus mesoderm and are thought to function in BMP signalling. Here we investigate the requirement for Xvent function by employing two dominant-negative strategies. Loss of Xvent function dorsalizes ventral mesoderm, induces secondary embryonic axes and directly neuralizes ectoderm. We further find that (1) Xvents act as transcriptional repressors, (2) Xvents function in an additive fashion and (3) a surprising number of genes are able to rescue dominant-negative Xvent phenotypes including Bmp-4, Smad-1 and wild-type Xvents and Xhox3, but not Xwnt-8. The results show that Xvent-1 and Xvent-2 are essential for ventral mesoderm formation and for preventing neural differentiation. A model is suggested to explain how Bmp-4 positional information is converted into distinct cellular responses.