The Iroquois genes code for homeodomain proteins that have been implicated in the neural development of Drosophila and vertebrates. We show here for the first time that Xiro-1, one of the Xenopus Iroquois genes, is expressed in the Spemann organizer from the start of gastrulation and that its overexpression induces a secondary axis as well as the ectopic expression of several organizer genes, such as chordin, goosecoid, and Xlim-1. Our results also indicate that Xiro-1 normally functions as a transcriptional repressor in the mesoderm. Overexpression of Xiro-1 or a chimeric form fused to the repressor domain of Engrailed cause similar phenotypes while overexpression of functional derivatives of Xiro-1 fused with transactivation domains (VP16 or E1A) produce the opposite effects. Finally, we show that Xiro-1 works as a repressor of bmp-4 transcription and that its effect on organizer development is dependent on BMP-4 activity. We propose that the previously observed down regulation of bmp-4 in the dorsal mesoderm during gastrulation can be explained by the repressor activity of Xiro-1 described here. Thus, Xiro-1 seems to have at least two different functions: control of neural plate and organizer development, both of which could be mediated by repression of bmp-4 transcription.