ertebrate embryonic blood formation is regulated by factors that participate in dorsal-ventral patterning and mesoderm induction. The GATA-binding transcription factors are required for normal hematopoiesis and are expressed during gastrulation when ventral mesoderm (VM) is induced to form blood. Based on the recent demonstration that bone morphogenetic protein (BMP-4) is a potent ventralizing factor and inducer of hematopoietic tissue, we hypothesized that GATA-2 could be induced or activated by BMP-4. Here we demonstrate that BMP-4 can stimulate GATA-2 expression, and that expression of a dominant negative BMP-4 receptor can suppress GATA-2 induction by BMP-4 in ventral mesoderm. Over-expression of GATA-2 in ventral mesoderm leads to increased globin production and forced expression of GATA-2 in primitive ectoderm adjacent to ventral mesoderm also stimulates globin expression. Our results suggest that BMP-4 and GATA-2 can function in two adjacent germ layers, mesoderm and ectoderm, to participate in blood cell formation during embryogenesis.