Embryonic patterning in vertebrates is dependent upon the balance of inductive signals and their specific antagonists. We show thatNoggin, which encodes a bone morphogenetic protein (BMP) antagonist expressed in the node, notochord, and dorsal somite, is required for normal mouse development. Although Noggin has been implicated in neural induction, examination of null mutants in the mouse indicates that Noggin is not essential for this process. However, Noggin is required for subsequent growth and patterning of the neural tube. Early BMP-dependent dorsal cell fates, the roof plate and neural crest, form in the absence of Noggin. However, there is a progressive loss of early, Sonic hedgehog(Shh)-dependent ventral cell fates despite the normal expression of Shh in the notochord. Further, somite differentiation is deficient in both muscle and sclerotomal precursors. Addition of BMP2 or BMP4 to paraxial mesoderm explants blocks Shh-mediated induction of Pax-1, a sclerotomal marker, whereas addition of Noggin is sufficient to induce Pax-1. Noggin and Shh induce Pax-1 synergistically. Use of protein kinase A stimulators blocks Shh-mediated induction of Pax-1, but not induction by Noggin, suggesting that induction is mediated by different pathways. Together these data demonstrate that inhibition of BMP signaling by axially secreted Noggin is an important requirement for normal patterning of the vertebrate neural tube and somite.