The Dickkopf (Dkk) family is composed of four main members (Dkk1-4), which typically regulate Wnt/beta-catenin signaling. An exception is Dkk3, which does not affect Wnt/beta-catenin signaling and whose function is poorly characterized. Here, we describe the Xenopus dkk3 homolog and characterize its expression and function during embryogenesis. Dkk3 is maternally expressed and zygotically in the cement gland, head mesenchyme, and heart. We show that depletion of Dkk3 in Xenopus embryos by Morpholino antisense oligonucleotides induces axial defects as a result of Spemann organizer and mesoderm inhibition. Dkk3 depletion leads to down-regulation of Activin/Nodal signaling by reducing levels of Smad4 protein. Dkk3 overexpression can rescue phenotypic effects resulting from overexpression of the Smad4 ubiquitin ligase Ectodermin. Furthermore, depletion of Dkk3 up-regulates FGF signaling, while Dkk3 overexpression reduces it. These results indicate that Dkk3 modulates FGF and Activin/Nodal signaling to regulate mesoderm induction during early Xenopus development.