The Snail family of genes comprise a group of transcription factors with characteristic zinc finger motifs. One of the members of this family is the Slug gene. Slug has been implicated in the development of neural crest in chick and Xenopus by antisense loss of function experiments. Here, we have generated functional derivatives of Xslug by constructing cDNAs that encode the Xslug protein fused with the transactivation domain of the virus-derived VP16 activator or with the repressor domain of the Drosophila Engrailed protein. Our results suggest that Xslug normally functions as a transcriptional repressor and that Xslug-VP16 behaves as a dominant negative of Xslug. In the present work, we confirm and extend previous results that suggest that Xslug has an important function in neural crest development, by controlling its own transcription. In addition we have uncovered a new function for Xslug. We show that Xslug is expressed in the dorsal mesendoderm at the beginning of gastrulation, where is it able to upregulate the expression of dorsal genes. On the other hand when Xslug is expressed outside of the organizer it represses the expression of ventral genes. Our results indicate that this effect on mesodermal patterning depends on BMP activity, showing that Xslug can directly control the transcription of BMP-4.