Hematopoietic induction occurs on the ventral side of Xenopus gastrulae and is thought to be triggered by the growth factor bone morphogenetic protein 4 (BMP-4). To characterize this process, we developed a quantitative and sensitive assay for the induction of erythroid cells from totipotent ectoderm of the embryo. When high doses of BMP-4 were used in this explant assay, few erythroid cells were detected. In contrast, large numbers of differentiated erythroid cells were induced when ectoderm was treated with BMP-4 and the mesoderm inducers, activin, or fibroblast growth factor (FGF). Ectopic expression of GATA-1 also induced abundant erythroid cells in ectoderm treated with bFGF. This induction of erythroid cells by GATA-1 was blocked by coexpression with a dominant negative BMP-4 receptor, showing that GATA-1 requires the BMP signaling cascade to function. These results suggest that BMP-4 requires mesoderm induction to generate a program of gene expression, which regulates the specification of hematopoietic mesoderm by GATA factors.