In Drosophila the amount of neurogenic ectoderm, from which the central nervous system (CNS) derives, is regulated by a dorsal-ventral system of positional information in which two secreted molecules of antagonistic functions, decapentaplegic (dpp) and short-gastrulation (sog), play fundamental roles. The vertebrate homologue of dpp is either bmp-4 or bmp-2 (ref. 5), and the homologue os sog is chd (s-chordin). In Xenopus the CNS is induced by signals emanating from the organizer, and two proteins secreted by the organizer, noggin and follistatin, have been shown to induce neural tissue in animal-cap assays. Here we report that Chd, another organizer-specific secreted factor, has neuralizing activity and that this activity can be antagonized by Bmp-4. Inhibition of the function of the endogenous Bmp-4 present in the animal cap also leads to neural differentiation. We suggest that conserved molecular mechanisms involving chd/sog and bmp-4/dpp gene products pattern the ectoderm in Xenopus and in Drosophila.