Vertebrate neural induction requires inhibition of bone morphogenetic protein (BMP) signaling in the ectoderm. However, whether inhibition of BMP signaling is sufficient to induce neural tissues in vivo remains controversial. Here we have addressed why inhibition of BMP/Smad1 signaling does not induce neural markers efficiently in Xenopus ventral ectoderm, and show that suppression of both Smad1 and Smad2 signals is sufficient to induce neural markers. Manipulations that inhibit both Smad1 and Smad2 pathways, including a truncated type IIB activin receptor, Smad7 and Ski, induce early neural markers and inhibit epidermal genes in ventral ectoderm; and co-expression of BMP inhibitors with a truncated activin/nodal-specific type IB activin receptor leads to efficient neural induction. Conversely, stimulation of Smad2 signaling in the neural plate at gastrula stages results in inhibition of neural markers, disruption of the neural tube and reduction of head structures, with conversion of neural to neural crest and mesodermal fates. The ability of activated Smad2 to block neural induction declines by the end of gastrulation. Our results indicate that prospective neural cells are poised to respond to Smad2 and Smad1 signals to adopt mesodermal and non-neural ectodermal fates even at gastrula stages, after the conventionally assigned end of mesodermal competence, so that continued suppression of both mesoderm- and epidermis-inducing Smad signals leads to efficient neural induction.