Background: Signaling molecules related to the Nodal protein play essential roles in the formation and patterning of the gastrula organizer and the germ layers during vertebrate development. The forkhead transcription factor FoxH1 (also known as Fast1) is a component of the Nodal signaling pathway. Although different roles have been suggested for FoxH1, its specific function during development is still unclear. Results: We report that the zebrafish locus schmalspur (sur) encodes a member of the FoxH1 family. Maternal sur transcripts were localized to the animal pole during oogenesis. Further expression was detected in a dorsoventral gradient at the onset of gastrulation and in specific domains in the organizer, notochord and lateral plate mesoderm. Embryos lacking zygotic sur function had variable deficiencies of prechordal plate and ventral neuroectoderm. In the absence of both maternal and zygotic sur function, embryos failed to form a morphologically distinct gastrula organizer and, later, developed severe defects in all axial structures. In these embryos, expression of nodal genes was initiated but not maintained. Unlike embryos lacking Nodal signaling, sur mutants formed endoderm and paraxial mesoderm. Conclusions: FoxH1 is involved in regulatory feedback loops that control the duration and intensity of Nodal signals in early patterning. In zebrafish, FoxH1 is not essential to induce Nodal-dependent cell fates, but its function is central in modulating and enhancing morphogenetic Nodal signals.