Morphogens are signaling molecules that convey positional information and dictate cell fates during development. Although ectopic expression in model organisms suggests that morphogen gradients form through diffusion, little is known about how morphogen gradients are created and interpreted during mammalian embryogenesis due to the combined difficulties of measuring endogenous morphogen levels and observing development in utero. Here we take advantage of a human gastruloid model to visualize endogenous Nodal protein in living cells, during specification of germ layers. We show that Nodal is extremely short range so that Nodal protein is limited to the immediate neighborhood of source cells. Nodal activity spreads through a relay mechanism in which Nodal production induces neighboring cells to transcribe Nodal. We further show that the Nodal inhibitor Lefty, while biochemically capable of long-range diffusion, also acts locally to control the timing of Nodal spread and therefore of mesoderm differentiation during patterning. Our study establishes a paradigm for tissue patterning by an activator-inhibitor pair.