The extracellular matrix is crucial for organogenesis. It is a complex and dynamic component that regulates cell behavior by modulating the activity, bioavailability and presentation of growth factors to cell surface receptors. Here, we determined the role of the extracellular matrix protein Nephronectin (Npnt) in heart development using the zebrafish model system. The vertebrate heart is formed as a linear tube in which myocardium and endocardium are separated by a layer of extracellular matrix termed the cardiac jelly. During heart development, the cardiac jelly swells at the atrioventricular (AV) canal, which precedes valve formation. Here, we show that Npnt expression correlates with this process. Morpholino-mediated knockdown of Npnt prevents proper valve leaflet formation and trabeculation and results in greater than 85% lethality at 7 days post-fertilization. The earliest observed phenotype is an extended tube-like structure at the AV boundary. In addition, the expression of myocardial genes involved in cardiac valve formation (cspg2, fibulin 1, tbx2b, bmp4) is expanded and endocardial cells along the extended tube-like structure exhibit characteristics of AV cells (has2, notch1b and Alcam expression, cuboidal cell shape). Inhibition of has2 in npnt morphants rescues the endocardial, but not the myocardial, expansion. By contrast, reduction of BMP signaling in npnt morphants reduces the ectopic expression of myocardial and endocardial AV markers. Taken together, our results identify Npnt as a novel upstream regulator of Bmp4-Has2 signaling that plays a crucial role in AV canal differentiation.