Heparan sulphate proteoglycans such as glypicans are essential modulators of intercellular communication during embryogenesis. In Xenopus laevis embryos, the temporal and spatial distribution of Glypican 4 (Gpc4) transcripts during gastrulation and neurulation suggests functions in early development of the central nervous system. We have functionally analysed the role of Xenopus Gpc4 by using antisense morpholino oligonucleotides and show that Gpc4 is part of the signalling network that patterns the forebrain. Depletion of GPC4 protein results in a pleiotropic phenotype affecting both primary axis formation and early patterning of the anterior central nervous system. Molecular analysis shows that posterior axis elongation during gastrulation is affected in GPC4-depleted embryos, whereas head and neural induction are apparently normal. During neurulation, loss of GPC4 disrupts expression of dorsal forebrain genes, such as Emx2, whereas genes marking the ventral forebrain and posterior central nervous system continue to be expressed. This loss of GPC4 activity also causes apoptosis of forebrain progenitors during neural tube closure. Biochemical studies establish that GPC4 binds FGF2 and modulates FGF signal transduction. Inhibition of FGF signal transduction, by adding the chemical SU5402 to embryos from neural plate stages onwards, phenocopies the loss of gene expression and apoptosis in the forebrain. We propose that GPC4 regulates dorsoventral forebrain patterning by positive modulation of FGF signalling.