TGFbeta-related factors are critical regulators of vertebrate mesoderm development. However, the signalling cascades required for their function during this developmental process are poorly defined. Tlx-2 is a homeobox gene expressed in the primitive streak of mouse embryos. Exogenous BMP-2 rapidly activates Tlx-2 expression in the epiblast of E6.5 embryos. A Tlx-2 promoter element responds to BMP-2 signals in P19 cells, and this response is mediated by BMP type I receptors and Smad1. These results suggest that Tlx-2 is a downstream target gene for BMP signalling in the primitive streak where BMP-4 and other TGFbeta-related factors are expressed. Furthermore, disruption of Tlx-2 function leads to early embryonic lethality. Similar to BMP4 and ALK3 mutants, the mutant embryos display severe defects in primitive streak and mesoderm formation. These experiments thus define a BMP/Tlx-2 signalling pathway that is required during early mammalian gastrulation.