The daf-4 gene encodes a type II bone morphogenetic protein receptor in Caenorhabditis elegans that regulates dauer larva formation, body size and male tail patterning. The putative type I receptor partner for DAF-4 in regulating dauer larva formation is DAF-1. Genetic tests of the mechanism of activation of these receptors show that DAF-1 can signal in the absence of DAF-4 kinase activity. A daf-1 mutation enhances dauer formation in a daf-4 null background, whereas overexpression of daf-1 partially rescues a daf-4 mutant. DAF-1 alone cannot fully compensate for the loss of DAF-4 activity, indicating that nondauer development normally results from the activities of both receptors. DAF-1 signaling in the absence of a type II kinase is unique in the type I receptor family. The activity may be an evolutionary remnant, owing to daf-1's origin near the type I/type II divergence, or it may be an innovation that evolved in nematodes. daf-1 and daf-4 promoters both mediated expression of green fluorescent protein in the nervous system, indicating that a DAF-1/DAF-4 receptor complex may activate a neuronal signaling pathway. Signaling from a strong DAF-1/DAF-4 receptor complex or a weaker DAF-1 receptor alone may provide larvae with more precise control of the dauer/nondauer decision in a range of environmental conditions.