Follistatin‐like 1 (Fstl1) is a member of the secreted protein acidic rich in cysteins (SPARC) family and has been implicated in many different signaling pathways, including bone morphogenetic protein (BMP) signaling. In many different developmental processes like, dorso‐ventral axis establishment, skeletal, lung and ureter development, loss of function experiments have unveiled an important role for Fstl1. Fstl1 largely functions through inhibiting interactions with the BMP signaling pathway, although, in various disease models, different signaling pathways, like activation of pAKT, pAMPK, Na/K‐ATPase, or innate immune responses, are linked to Fstl1. How Fstl1 inhibits BMP signaling remains unclear, although it is known that Fstl1 does not function through a scavenging mechanism, like the other known extracellular BMP inhibitors such as noggin. It has been proposed that Fstl1 interferes with BMP receptor complex formation and as such inhibits propagation of the BMP signal into the cell. Future challenges will encompass the identification of the factors that determine the mechanisms that underlie the fact that Fstl1 acts by interfering with BMP signaling during development, but through other signaling pathways during disease. Birth Defects Research (Part C) 99:61–69, 2013. © 2013 Wiley Periodicals, Inc.