The DAF-4 receptor kinase, which promotes larval development, is encoded by a 2.9 kb mRNA transcribed from the only type II TGF-/BMP receptor gene in Caenorhabditis elegans. Here we report that alternative polyadenylation in intron 5 of daf-4 results in a 2.0 kb mRNA that encodes an open reading frame including only the N-terminal secretion signal and ligand-binding domains, and not the transmembrane or kinase domains, of DAF-4. Northern blots and Real-time RT-PCR amplifications using RNA samples from developmentally-staged animals show that expression levels of both the 2.9 kb and 2.0 kb transcripts are relatively constant and their abundances similar, except for the transition between non-dauer and dauer stages. In dauer larvae, steady-state levels of the 2.0 kb mRNA increases more than 10-fold and exceed the 2.9 kb transcript, coincident with an absence of signaling from DAF-4. Transgenic expression of a recombinant daf-4 transgene that encodes only the 2.0 kb mRNA enhances the Daf-c phenotype of a daf-4 hypomorph, whereas the same transgene with a nonsense mutation does not. These data suggest that a polypeptide encoded by the 2.0 kb transcript can function as an antagonist of full-length DAF-4 signaling. Alternative processing of type II receptor transcripts to generate an antagonist is a novel mechanism for negative regulation of a TGF- signaling pathway.