The cement gland in Xenopus laevis has long been used as a model to study the interplay of cell signaling and transcription factors during embryogenesis. It has been shown that an intermediate level of Bone Morphogenetic Protein (BMP) signaling is essential for cement gland formation. In addition, several transcription factors have been linked to cement gland development. One of these, the homeodomain-containing protein Pitx1, can generate ectopic cement gland formation; however, the mechanisms underlying this process remain obscure. We report here, for the first time, a requirement for Pitx proteins in cement gland formation, in vivo: knockdown of both pitx1 and the closely related pitx2c inhibit endogenous cement gland formation. Pitx1 transcriptionally activates cement gland differentiation genes through both direct and indirect mechanisms, and functions as a transcriptional activator to inhibit BMP signaling. This inhibition, required for the expression of pitx genes, is partially mediated by Pitx1-dependent follistatin expression. Complete suppression of BMP signaling inhibits induction of cement gland markers by Pitx1; furthermore, we find that Pitx1 physically interacts with Smad1, an intracellular transducer of BMP signaling. We propose a model of cement gland formation in which Pitx1 limits local BMP signaling within the cement gland primordium, and recruits Smad1 to activate direct downstream targets.