Evidence is presented for a new pathway participating in anterior neural development. It was found that IGF binding protein 5 (IGFBP-5), as well as three IGFs expressed in early embryos, promoted anterior development by increasing the head region at the expense of the trunk in mRNA-injected Xenopus embryos. A secreted dominant-negative type I IGF receptor (DN-IGFR) had the opposite effect. IGF mRNAs led to the induction of ectopic eyes and ectopic head-like structures containing brain tissue. In ectodermal explants, IGF signals induced anterior neural markers in the absence of mesoderm formation and DN-IGFR inhibited neural induction by the BMP antagonist Chordin. Thus, active IGF signals appear to be both required and sufficient for anterior neural induction in Xenopus.