Dorsoventral patterning depends on the local concentrations of the morphogens. Twisted gastrulation (TSG) regulates the extracellular availability of a mesoderm inducer, bone morphogenetic protein 4 (BMP-4).However, TSG function in vivo is still unclear. We isolated a TSG cDNA as a secreted molecule from the mouse aorta-gonad-mesonephros region. Here we show that TSG-deficient mice were born healthy, but more than half of the neonatal pups showed severe growth retardation shortly after birth and displayed dwarfism with delayed endochondral ossification and lymphopenia, followed by death within a month. TSG-deficient thymus was atrophic, and phosphorylation of SMAD1 was augmented in the thymocytes, suggesting enhanced BMP-4 signaling in the thymus. Since BMP-4 promotes skeletogenesis and inhibits thymus development, our findings suggest that TSG acts as both a BMP-4 agonist in skeletogenesis and a BMP-4 antagonist in T-cell development. Although lymphopenia in TSG-deficient mice would partly be ascribed to systemic effects of runtiness and wasting, our findings may also provide a clue for understanding the pathogenesis of human dwarfism with combined immunodeficiency.Transforming growth factor  (TGF-) superfamily members bone morphogenetic proteins (BMPs) are critical developmental regulators. Mutations in TGF- family ligands, receptors, and signal transducers such as SMADs are associated with a number of human diseases. TSG was identified in Drosophila as one of the seven zygotic genes that govern the fate of dorsal cells in Drosophila embryos (37). TSG encodes a secreted, cysteine-rich protein that modulates the activity of the Decapentaplegic (DPP) protein, which corresponds to vertebrate BMP-4, and mutations in TSG result in defects of dorsal midline structures called amnioserosa in Drosophila (20). In searching for essential soluble factors produced from the aorta-gonad-mesonephros (AGM) region where definitive hematopoiesis arises (21), we employed the retrovirus-mediated signal sequence trap method previously developed (16), using mRNA from the AGM region of the 10.5-day-postcoitum (dpc) mouse embryo, and isolated a mouse homologue of Drosophila TSG. In 2000, Xenopus twisted gastrulation (TSG) was found to bind directly to BMP-4 to promote BMP-4 signaling by regulating the extracellular availability of BMP-4 (25). Since the dorsoventral axis is inverted between Drosophila and vertebrates and ventralizing factor BMP-4 is essential for mesoderm formation (33) and hematopoietic stem cell (HSC) survival (4), we speculated that TSG may also be involved in ventralization and mesoderm-derived organogenesis, including hematopoiesis, in mammals. Meanwhile, four groups using fine molecular analyses reported that TSG acts rather as a BMP-4 (DPP) antagonist by forming a ternary complex of TSG, BMP-4, and BMP-4 antagonist Chordin or by collaborating with a protease, Tolloid, to generate a Supersog (truncated stable form of Sog [Chordin]) in fly, fish, and frog (6,28,29,35). Thus, it is controversial whether TSG acts...