Zebrafish cyclops (cyc) mutations cause deficiencies in the dorsal mesendoderm and ventral neural tube, leading to neural defects and cyclopia. Here we report that cyc encodes a transforming growth factor-β (TGF-β)- related intercellular signalling molecule that is similar to mouse nodal. cyc is expressed in dorsal mesendoderm at gastrulation and in the prechordal plate until early somitogenesis. Expression reappears transiently in the left lateral-plate mesoderm, and in an unprecedented asymmetric pattern in the left forebrain. Injection of cyc RNA non-autonomously restores sonic hedgehog-expressing cells of the ventral brain and floorplate that are absent in cyc mutants, whereas inducing activities are abolished by cycm294, a mutation of a conserved cysteine in the mature ligand. Our results indicate that cyc provides an essential non-cell-autonomous signal at gastrulation, leading to induction of the floorplate and ventral brain.