The foxd1 gene (previously known as Brain Factor 2/BF2) is expressed during early Xenopus laevis development. At gastrula stages, foxd1 is expressed in dorsal mesoderm regions fated for muscle and notochord, while at neurula stages, foxd1 is expressed in the forebrain region. Previous studies in the neural plate showed that FoxD1 protein acts as transcriptional repressor downstream of BMP antagonism, neuralizing the embryo to control anterior neural cell fates. FoxD1 mesoderm function was not rigorously analyzed, but ectopic FoxD1 levels increased muscle marker expression in embryos. Using a FoxD1-specific antisense morpholino oligonucleotide, we knocked down endogenous FoxD1 protein activity in developing Xenopus embryos. In this present study, we show that FoxD1 is crucial for dorsal mesoderm formation. Analogous to neural tissue, FoxD1 acts downstream of BMP antagonism to induce dorsal mesoderm cell fates, such as muscle and notochord. FoxD1 is sensitive to its local signaling environment, having differential transcription factor activity in the presence or absence of Wnt or BMP signaling. FoxD1 induces posterior neural tissue in the presence of Wnt or BMP activities, but its activity is restricted to "normal" anterior neural tissue induction when BMP and Wnt activities are repressed. In dorsal mesoderm, FoxD1 interacts with Wnt signaling and BMP antagonism to induce muscle and notochord, while simultaneously repressing more anterior and ventral mesoderm cell fates. FoxD1 protein has multiple activities that are masked or released in the different germ layers as a function of the local signaling environment.