A hallmark of heart-valve development is the swelling and deposition of extracellular matrix in the heart-valve region. Only myocardium overlying this region can signal to underlying endothelium and cause it to lose cell-cell contacts, delaminate, and invade the extracellular space abutting myocardium and endocardium to form endocardial cushions (EC) in a process known as epithelial to mesenchymal transformation (EMT). The heart-valve myocardium expresses bone morphogenetic protein-2 (Bmp2) coincident with development of valve mesenchyme. BMPs belong to the transforming growth factor beta superfamily (TGF-beta) and play a wide variety of roles during development. We show that conditional ablation of Bmp2 in cardiac progenitors results in cell fate changes in which the heart-valve region adopts the identity of differentiated chamber myocardium. Moreover, Bmp2-deficient hearts fail to induce production and deposition of matrix at the heart-valve-forming region, resulting in the inability of the endothelium to swell and impairing the development of ECs. Furthermore, in collagen invasion assays, Bmp2 mutant endothelium is incapable of undergoing EMT, and addition of BMP2 protein to mutant heart explants rescues this phenotype. Our results demonstrate that Bmp2 is both necessary and sufficient to specify a field of cardiac progenitor cells as the heart-valve-inducing region amid developing atria and ventricles.