In this project, we have focused our efforts on the studies of BMP-4/FGF signaling pathways during Xenopus embryonic development. The FGF signaling pathway has been shown to be important in the formation of some derivatives of ventroposterior mesoderm. However, the function of FGF in the specification of the hematopoietic lineage has remained unclear. We address the role of FGF in the specification of the erythropoietic lineage and in the overall patterning of ventral mesoderm. Ectopic ventral expression of the dominant negative form of the FGF receptor (XFD) results in a dramatic enhancement of erythroid development whereas ventral overexpression of eFGF suppresses blood island formation. Furthermore, blocking FGF signaling is sufficient to activate an erythropoietic program of gene expression in isolated animal pole ectoderm, increasing transcript levels of GATA 2 and globin. In addition, we observed that overexpression of eFGF in the ventral region of the embryo enhances smooth muscle actin levels whereas XFD blocks smooth muscle formation. These observations suggest that FGF functions to pattern ventral mesoderm along the dorsal to ventral axis with higher levels of FGF signaling resulting in the formation of smooth muscle containing tissues and low levels causally generating hematopoietic development. FGF thus patterns ventral mesoderm in a gradient opposing that of BMP-4. To address how relative levels of BMP-4 and FGF signaling might interact to specify or repress the hematopoietic region of ventral mesoderm, we examined the role of PV.1, a member of the ventralizing family of transcription factors functioning downstream of BMP-4 and Smad1. We found that PV.1 negatively regulates GATA 2 and globin expression. Xenopus brachyury (Xbra), was also found to inhibit GATA 2 expression. Furthermore, FGF enhances both PV.1 and Xbra transcript levels. All of these observations suggest that the FGF signaling pathway functions to suppress erythropoiesis in response to BMP-4 by co- stimulating PV.1 and Xbra.