The Transforming Growth Factor-beta superfamily member decapentaplegic (dpp) acts as an extracellular morphogen to pattern the embryonic ectoderm of the Drosophila embryo. To identify components of the dpp signaling pathway, we screened for mutations that act as dominant maternal enhancers of a weak allele of the dpp target gene zerknŁllt. In this screen, we recovered new alleles of the Mothers against dpp (Mad) and Medea genes. Phenotypic analysis of the new Medea mutations indicates that Medea, like Mad, is required for both embryonic and imaginal disc patterning. Genetic analysis suggests that Medea may have two independently mutable functions in patterning the embryonic ectoderm. Complete elimination of maternal and zygotic Medea activity in the early embryo results in a ventralized phenotype identical to that of null dpp mutants, indicating that Medea is required for all dpp-dependent signaling in embryonic dorsal-ventral patterning. Injection of mRNAs encoding DPP or a constitutively activated form of the DPP receptor, Thick veins, into embryos lacking all Medea activity failed to induce formation of any dorsal cell fates, demonstrating that Medea acts downstream of the thick veins receptor. We cloned Medea and found that it encodes a protein with striking sequence similarity to human SMAD4. Moreover, injection of human SMAD4 mRNA into embryos lacking all Medea activity conferred phenotypic rescue of the dorsal-ventral pattern, demonstrating conservation of function between the two gene products.