The homeobox genes Xlim-1 and goosecoid (gsc) are coexpressed in the Spemann organizer and later in the prechordal plate that acts as head organizer. Based on our previous finding that gsc is a possible target gene for Xlim-1, we studied the regulation of gsc transcription by Xlim-1 and other regulatory genes expressed at gastrula stages, by using gsc-luciferase reporter constructs injected into animal explants. A 492-bp upstream region of the gsc promoter responds to Xlim-1/3m, an activated form of Xlim-1, and to a combination of wild-type Xlim-1 and Ldb1, a LIM domain binding protein, supporting the view that gsc is a direct target of Xlim-1. Footprint and electrophoretic mobility shift assays with GST-homeodomain fusion proteins and embryo extracts overexpressing FLAG-tagged full-length proteins showed that the Xlim-1 homeodomain or Xlim-1/Ldb1 complex recognize several TAATXY core elements in the 492-bp upstream region, where XY is TA, TG, CA, or GG. Some of these elements are also bound by the ventral factor PV.1, whereas a TAATCT element did not bind Xlim-1 or PV.1 but did bind the anterior factors Otx2 and Gsc. These proteins modulate the activity of the gsc reporter in animal caps: Otx2 activates the reporter synergistically with Xlim-1 plus Ldb1, whereas Gsc and PV.1 strongly repress reporter activity. We show further, using animal cap assays, that the endogenous gsc gene was synergistically activated by Xlim-1, Ldb1, and Otx2 and that the endogenous otx2 gene was activated by Xlim-1/3m, and this activation was suppressed by the posterior factor Xbra. Based on these data, we propose a model for gene interactions in the specification of dorsoventral and anteroposterior differences in the mesoderm during gastrulation.