During zebrafish development, zygotic gene expression initiated at the midblastula transition converts maternal information on embryo polarity into a transcriptional read-out. Expression of a homeobox gene, vega1, is activated at midblastula transition in all blastomeres, but is down-regulated dorsally before gastrulation. Ubiquitous expression of vega1 is maintained in bozozok mutants, in which the dorsal-specific homeobox gene bozozok/dharma (boz/dha) is disrupted and organizer formation is impaired. Vega1 inhibits expression of boz/dha and organizer-specific genes, and causes ventralization resulting in a headless phenotype. In contrast, VP16-vega1, a fusion including the Vega1 homeodomain and VP16 activation domain, elicits ectopic expression of organizer genes and suppresses several aspects of the boz mutant phenotype. We propose that boz/dha-dependent down-regulation of vega1 in the dorsal region is an early essential step in organizer formation in zebrafish.