Nodal proteins are secreted signaling factors of the transforming growth factor beta (TGFbeta) family with essential roles in embryonic development in vertebrates. Mutations affecting the Nodal factors have severe consequences in mammals and fish. Furthermore, increased Nodal levels have been associated with melanoma tumor progression. Like other TGFbeta-related proteins, Nodal factors consist of a pro-domain and a mature domain. The pro-domain of mouse Nodal protein stabilizes its precursor. However, the mechanisms by which the pro-domains exert their activities are unknown. Here, we characterize the zebrafish Nodal-related factor Cyclops (Cyc) and find unexpected functions for the pro-domain in regulating Cyc activity. We identified a lysosome-targeting region in the Cyc pro-domain that destabilizes the precursor and restricts Cyc activity, revealing the molecular basis for the short-range signaling activities of Cyc. We show that both the pro- and mature-domains of Cyc regulate its stability. We also characterize a mutation in the pro-domain of human NODAL (hNODAL) that underlies congenital heterotaxia. Heterologous expression of mutant hNODAL increases expression of Nodal-response genes. Our studies reveal unexpected roles for the pro-domain of the Nodal factors and provide a possible mechanism for familial heterotaxia.