Epidermal fate in Xenopus ectoderm has been shown to be induced by a secreted growth factor, Bone Morphogenetic Protein 4 (BMP4). However, the molecular mechanism mediating this response is poorly understood. Here, we show that the expression of the homeobox gene, msx1, is an immediate early response to BMP4 in Xenopus embryos. The timing of expression and embryonic distribution of msx1 parallel those described for BMP4. Moreover, overexpression of msx1 in early Xenopus embryos leads to their ventralization as described for BMP4. Consistent with mediating a BMP type of signaling, overexpression of msx1 is sufficient to induce epidermis in dissociated ectoderm cells, which would otherwise form neural tissue. Finally, msx1 can also rescue neuralization imposed by a dominant negative BMP receptor (tBR) in ectodermal explants. We propose that Xenopus msx1 acts as a mediator of BMP signaling in epidermal induction and inhibition of neural differentiation.