The epidermal growth factor-Cripto-1/FRL-1/Cryptic (EGF-CFC) proteins, characterized by the highly conserved EGF and CFC domains, are extracellular membrane associated growth factor-like glycoproteins. These proteins are essential components of the Nodal signaling pathway during early vertebrate embryogenesis. Homologs of the EGF-CFC family have also been implicated in tumorigenesis in humans. Yet, little is known about the mode of molecular evolution in this family. Here we investigate the origin, extent of conservation and evolutionary relationships of EGF-CFC proteins across the metazoa. The results suggest that the first appearance of the EGF-CFC gene occurred in the ancestor of the deuterostomes. Phylogenetic analysis supports the classification of the family into distinct subfamilies that appear to have evolved through lineage-specific duplication and divergence. Site-specific analyses of evolutionary rate shifts between the two major mammalian paralogous subfamilies, Cripto and Cryptic, reveal critical amino acid sites that may account for the observed functional divergence. Furthermore, estimates of functional divergence suggest that rapid change of evolutionary rates at sites located mainly in the CFC domain may contribute towards distinct functional properties of the two paralogs.