The mesoderm of Xenopus laevis is formed through an inductive interaction in which a signal from the vegetal hemisphere of the blastula acts on overlying animal pole cells. We have recently reported that the Xenopus XTC cell line secretes a mesoderm-inducing factor (MIF) which may resemble the natural signal. In this paper, we describe the purification and biological effects of XTC-MIF. XTC-MIF is a hydrophobic protein with an isoelectric point of 7.8 and an apparent relative molecular mass (Mr) of 23,500. On reduction, XTC-MIF loses its biological activity and the protein dissociates into two inactive subunits with apparent Mr of about 15,000. These properties closely resemble those of transforming growth factor type beta (TGF-beta), and it is interesting that TGF-beta 2 has recently been shown to have mesoderm-inducing activity. The biological response to XTC-MIF is graded. After exposure to 0.2-1.0 ng ml-1 XTC-MIF, stage-8 animal pole explants form mesenchyme and mesothelium. At higher concentrations, up to about 5 ng ml-1, muscle is formed, occasionally with neural tissue. In response to concentrations of XTC-MIF greater than 5-10 ng ml-1, notochord and neural tissue are usually formed. The formation of notochord and neural tissue in response to XTC-MIF represents a qualitative difference between this inducing factor and the other known group of MIFs, the heparin-binding growth factors.