Bone morphogenetic proteins (BMPs) are important for body patterning and morphogenesis, whereas several BMP antagonists regulate the functions of BMPs during embryonic development and tissue differentiation. Protein related to DAN and cerberus (PRDC) is a secreted protein with a cystine knot structure identified by gene trapping in embryonic stem cells. Although PRDC shows sequence homology with proteins of the BMP antagonist family, its biological activity and physiological functions are unclear. We generated recombinant PRDC and its paralog, gremlin, and tested their ability to suppress actions initiated by diverse BMP proteins. Similar to the known BMP antagonist, gremlin, PRDC blocked ligand signaling induced by BMP2 and BMP4 but had minimal effects on reporter gene activation induced by GDF-9, activin, or transforming growth factor-beta. Co-precipitation assays further demonstrated the direct protein-protein interactions between PRDC and BMP2 or BMP4. Reverse transcriptase-PCR analyses indicated that PRDC transcripts are widely expressed showing higher levels in ovary, brain, and spleen. In mouse ovary, PRDC transcripts were increased following gonadotropin treatment. In situ hybridization analyses further indicated that ovarian PRDC transcripts are localized in granulosa cells of selective follicles. In addition, co-treatment with PRDC antagonized the inhibitory effects of BMP4 on the follicle-stimulating hormone stimulation of progesterone production by cultured rat granulosa cells. Thus, PRDC is a potent BMP antagonist with a wide tissue expression pattern, and ovarian PRDC expressed in granulosa cells could be involved in follicular development by antagonizing the actions of theca cell-derived BMPs.