The BMP4 signaling pathway plays key roles during early embryonic development and for maintenance of adult homeostasis. In the extracellular space, BMP4 activity is regulated by a group of interacting molecules including the BMP antagonist Chordin, the metalloproteinase Tolloid and Twisted gastrulation (Tsg). In this study, we identified Biglycan (Bgn), a member of the small leucine-rich proteoglycan family, as a new extracellular modulator of BMP4 signaling. Xenopus Bgn (xBgn) is expressed uniformly in the ectoderm and mesoderm and their derivatives during development. Microinjection of Bgn mRNA induced secondary axes, dorsalized the mesoderm and inhibited BMP4 activity in Xenopus embryos. Biochemical experiments showed that Bgn binds BMP4 and Chordin, interaction that increased binding of BMP4 to Chordin. Bgn was also able to improve the efficiency of Chordin-Tsg complexes to block BMP4 activity. Using antisense morpholinos, we demonstrated that Bgn required Chordin to induce double axes in Xenopus. This work unveiled a new function for Bgn, its ability to regulate BMP4 signaling through modulation of Chordin anti-BMP4 activity.