Both the BMP and Wnt pathways have been implicated in directing aspects of dorsal neural tube closure and cell fate specification. However, the mechanisms that control the diverse responses to these signals are poorly understood. In this study, we provide genetic and functional evidence that the secreted sFRP1 and sFRP2 proteins, which have been primarily implicated as negative regulators of Wnt signaling, can also antagonize BMP signaling in the caudal neural tube and that this function is critical to maintain proper neural tube closure and dorsal cell fate segregation. Our studies thus reveal a novel role for specific sFRP proteins in balancing the response of cells to two critical extracellular signaling pathways.