BMP signals play important roles in the regulation of diverse events in development and in the adult. In amniotes, like the amphibian Xenopus laevis, BMPs promote ventral specification, while chordin and other BMP inhibitors expressed dorsally in the Spemann's organizer play roles in establishment and/or maintenance of this region as dorsal endomesoderm. The activities of chordin are in turn regulated by the secreted proteolytic enzymes BMP1 and Xolloid. Recently, we and others have identified the protein twisted gastrulation (TSG) as a soluble BMP modulator that functions by modifying chordin activity. Overexpression and genetic analyses in Drosophila, Xenopus and zebrafish together with in vitro biochemical studies suggest that TSG might act as a BMP antagonist; but there is also evidence that TSG may promote BMP signaling. Here we report examination of the in vivo function of TSG in early Xenopus development using a loss-of-function approach. We show that reducing TSG expression using antisense TSG morpholino oligonucleotides (MOs) results in moderate head defects. These defects can be rescued both by a TSG that cannot be inhibited by the MO, and by the BMP antagonists chordin and noggin. Furthermore, while neither the onset of gastrulation nor the expression of marker genes are affected in early gastrulae, dorsal marker gene expression is reduced at the expense of expanded ventral marker gene expression beginning at mid to late gastrula stage. TSG-MO and Chd-MOs also cooperate to strongly repress head formation. Finally, we note that the loss of TSG function results in a shift in tissue responsiveness to the BMP inhibitory function of chordin in both animal caps and the ventral marginal zone, a result that implies that the activity of TSG may be required for chordin to efficiently inhibit BMPs in these developmental contexts. These data, taken together with the biochemistry and overexpression studies, argue that TSG plays an important role in regulating the potency of chordin's BMP inhibitory activity and TSG and chordin act together to regulate the extent of dorsoanterior development of early frog embryos.