The bone morphogenetic protein (BMP) family of signaling molecules and their antagonists are involved in patterning of the body axis and numerous aspects of organogenesis. Classical biochemical purification and protein sequencing of highly purified fractions containing potent bone forming activity from bovine cartilage identified several BMPs together with a number of other proteins. One such protein was SMOC-2 (secreted modular calcium-binding protein-2), classified as belonging to the BM-40 family of modular extracellular proteins. Data regarding the biological function of SMOC-2 and closely related SMOC-1 remain limited, and their expression or function during embryological development is unknown. We therefore isolated the Xenopus ortholog of human SMOC-1 (XSMOC-1) and explored its function in Xenopus embryos. In gain-of-function assays, XSMOC-1 acted similarly to a BMP antagonist. However, in contrast to known extracellular ligand-binding BMP antagonists, such as noggin, SMOC antagonizes BMP activity in the presence of a constitutively active BMP receptor, indicating a mechanism of action downstream of the receptor. We provide several lines of evidence to suggest that SMOC acts downstream of the BMP receptor via MAPK-mediated phosphorylation of the Smad linker region. Loss-of-function studies, using antisense morpholino oligonucleotides, revealed XSMOC-1 to be essential for postgastrulation development. The catastrophic developmental failure observed following XSMOC knockdown resembles that observed following simultaneous depletion of three ligand-binding BMP antagonists described in prior studies. These findings provide a direct link between the extracellular matrix-associated protein SMOC and a signaling pathway of general importance in anatomic patterning and cell or tissue fate specification.