From the onset of neurectoderm differentiation, homeobox genes of the Anf class are expressed within a region corresponding to the presumptive telencephalic and rostral diencephalic primordia. Here we investigate functions of the Xenopus member of Anf, Xanf-1, in the differentiation of the anterior neurectoderm. We demonstrate that ectopic Xanf-1 can expand the neural plate at expense of adjacent non-neural ectoderm. In tadpoles, the expanded regions of the plate developed into abnormal brain outgrowths. At the same time, Xanf-1 can inhibit terminal differentiation of primary neurones. We also show that, during gastrula/neurula stages, the exogenous Xanf-1 can downregulate four transcription regulators, XBF-1, Otx-2, Pax-6 and the endogenous Xanf-1, that are expressed in the anterior neurectoderm. However, during further development, when the exogenous Xanf-1 was presumably degraded, re-activation of XBF-1, Otx-2 and Pax-6 was observed in the abnormal outgrowths developed from blastomeres microinjected with Xanf-1 mRNA. Other effects of the ectopic Xanf-1 include cyclopic phenotype and inhibition of the cement gland, both by Otx-2-dependent and -independent mechanisms. Using fusions of Xanf-1 with the repressor domain of Drosophila engrailed or activator domain of herpes virus VP16 protein, we showed that most of the observed effects of Xanf-1 were probably elicited by its functioning as a transcription repressor. Altogether, our data indicate that the repressor function of Xanf-1 may be necessary for regulation of both neural differentiation and patterning in the presumptive anterior neurectoderm.