This study analyzes the hierarchy of signals that spatially restrict expression of Xenopus Xwnt-8 to mesodermal cells outside of the Spemann organizer field and examines the potential role that endogenous Xwnt-8 may play in dorsoventral patterning of the embryonic mesoderm. The effects of ectopic introduction of a Nieuwkoop center-like activity or of ectopic expression of goosecoid, on the distribution of endogenous Xwnt-8 transcripts were analyzed. The results of these studies are consistent with the hypothesis that maternally derived signals from the Nieuwkoop center function to positively regulate expression of the homeo box gene goosecoid in Spemann organizer cells, leading to a subsequent repression of Xwnt-8 expression in these cells. This exclusion of Xwnt-8 from cells of the organizer field may be important for normal dorsal development, in that ectopic expression of Xwnt-8 in organizer cells after the midblastula stage, by injection of plasmid DNA, ventralizes the fate of these cells. This is distinct from the previously observed dorsalizing effect of Xwnt-8 when expressed prior to the midblastula stage by injection of RNA. The effects of plasmid-derived Xwnt-8 on isolated blastula animal cap ectoderm were also analyzed. Expression of Xwnt-8 in animal pole ectoderm after the midblastula stage ventralizes the response of dorsal animal pole cells to activin and allows naive ectodermal cells to differentiate as ventral mesoderm in the absence of added growth factors. Collectively, these data are consistent with the hypothesis that Xwnt-8 plays a role in the mesodermal differentiation of ventral marginal zone cells during normal development. Furthermore, endogenous Xwnt-8 may ventralize the response of lateral mesodermal cells to dorsalizing signals from the organizer, thus contributing to the graded nature of the final body pattern.