According to the three-signal model of mesoderm patterning in Xenopus, all mesoderm, with the exception of the Spemann organizer, is originally specified as ventral type, such as lateral plate and primary blood islands. It is proposed that the blood islands become restricted to the ventralmost mesoderm because they are not exposed to the BMP-inhibiting activity of the Spemann organizer. We present evidence here that, contrary to predictions of this model, the blood islands remain ventrally restricted even in the absence of Spemann organizer signaling. We further observed that inhibition of FGF signaling with a dominant negative receptor resulted in the expansion of the blood island-forming territory with a concomitant loss of somite. The requirement for FGF signaling in specifying somite versus blood island territories was observed as early as midgastrulation. The nonoverlapping expression domains of Xnr-2 and Xbra in the gastrula marginal zone appear to mark presumptive blood island and somite, respectively. Inhibition of FGF signaling with dominant negative receptor leads to an expansion of Xnr-2 expression and to a corresponding reduction in Xbra expression. On the other hand, we found no evidence that manipulation of BMP signaling, either positively or negatively, altered the expression domains of Xnr-2 and Xbra. These results suggest that FGF signaling, rather than BMP-inhibiting activity, is essential for restriction of the ventral blood islands to ventral mesoderm.