Bone morphogenetic proteins (BMPs) are multifunctional cytokines, which are members of the transforming growth factor-beta (TGF-beta) superfamily. Activities of BMPs are extracellularly regulated by BMP-binding proteins, Noggin and Chordin. BMPs bind to two different types of serine-threonine kinase receptors, type I and type II. Two BMP type I receptors and a BMP type II receptor have been identified in mammals. Intracellular signals are transduced by Smad proteins. Smad1, Smad5 and probably MADH6, are activated by BMP receptors, form heteromeric complexes with Smad4, and translocate into the nucleus where they may activate transcription of various genes. Smad6 and Smad7 are inhibitory Smads, and may act as autocrine switch-off signals. In Drosophila melanogaster, Decapentaplegic (Dpp) is a homologue of mammalian BMPs. In this review, mechanism of action of Dpp will be discussed in comparison with that of BMPs.