More than 20 members of the transforming growth factor-beta (TGF-beta) superfamily of growth and differentiation factors have been implicated in development. One member of the TGF-beta family has been previously reported from Drosophila, the decapentaplegic (dpp) gene which is involved in embryonic dorsal/ventral polarity, embryonic gut formation, and imaginal disk development. Using PCR methods, we have identified a second Drosophila gene in the TGF-beta family. It encodes a protein product that is more similar to the TGF-beta-related human bone morphogenetic proteins (BMPs) 5, 6, and 7 than it is to the Drosophila dpp gene product. Because of its localization on the polytene chromosome map, we refer to this gene as 60A. Expression of a 60A cDNA in Drosophila S2 cells was used to determine that 60A encodes a preproprotein that is processed to yield secreted amino- and carboxy-terminal polypeptides. The carboxy-terminal peptides are recovered as disulfide-linked homodimers. The 60A transcripts and protein are first detected at the onset of gastrulation, primarily in the mesoderm of the extending germ band. As the germ band retracts, and throughout later stages of embryonic development, the 60A transcript and protein are most readily detected in cells of the developing foregut and hindgut.