The activin receptor, a transmembrane serine-threonine kinase, is a key component necessary for pattern formation in early Xenopus development. This protein interacts with members of the transforming growth factor beta family and stimulates cells of the marginal zone to differentiate along the mesodermal pathway. In large part, this function of the activin receptor has been inferred from observations of phenotypes induced by injected mRNA encoding wild-type or mutant forms of the protein. Naturally occurring activin receptor mRNA is maternally inherited and contains within its 3' untranslated region an embryonic-type cytoplasmic polyadenylation element (CPE), an oligouridylic acid sequence that promotes cytoplasmic polyadenylation and resultant translational activation. Based on the presence of this element, we predicted in a previous report that activin receptor mRNA expression in embryos might be regulated by cytoplasmic polyadenylation (Simon and Richter, Mol. Cell. Biol. 14, 7867-7875, 1994). In this study, we have tested this hypothesis and show that not only do endogenous and injected activin receptor mRNAs undergo cytoplasmic polyadenylation during embryogenesis, but also that this process is necessary for stimulating translation and inducing the morphological defects observed by mRNA overexpression. The activin receptor CPE is bound by a Mr 36 x 10(3) protein in vitro, and competition for this factor between mRNAs in vivo inhibits activin receptor mRNA polyadenylation. This competition may be responsible for the lack of mesoderm formation observed in such injected embryos. These data suggest that cytoplasmic polyadenylation controls differentiation and pattern formation in early Xenopus development.