Activin/Nodal signaling is essential for germ-layer formation and axial patterning during embryogenesis. Recent evidence has demonstrated that the intra- or extracellular inhibition of this signaling is crucial for ectoderm specification and correct positioning of mesoderm and endoderm. Here, we analyzed the function of Xenopus serum response factor (XSRF) in establishing germ layers during early development. XSRF transcripts are restricted to the animal pole ectoderm in Xenopus early embryos. Ectopic expression of XSRF RNA suppresses mesoderm induction, both in the marginal zone in vivo and caused by Activin/Nodal signals in animal caps. Dominant-negative mutant or antisense morpholino oligonucleotide-mediated inhibition of XSRF function expands the expression of mesendodermal genes toward the ectodermal territory and enhances the inducing activity of the Activin signal. SRF interacts with Smad2 and FAST-1, and inhibits the formation of the Smad2-FAST-1 complex induced by Activin. These results suggest that XSRF might act to ensure proper mesoderm induction in the appropriate region by inhibiting the mesoderm-inducing signals during early embryogenesis.