Smad1 and smad5 encode transcription factors that have been implicated in the transduction of signaling by the bone morphogenetic proteins Bmp2 and/or Bmp4. Here we report the characterization of Smad1 and Smad5 from the zebrafish, Danio rerio. Although smad1, smad5, bmp2b, and bmp4 are all expressed during gastrulation and although all four proteins have ventralizing activities, they appear to play distinct roles during dorsoventral pattern formation. smad1 expression starts shortly before the onset of gastrulation. It is expressed on the ventral side of the embryo, whereas smad5 transcripts are both maternally and zygotically provided and ubiquitously distributed. Injection studies and mutant analyses suggest that the ventral smad1 expression is positively regulated by Bmp2b, but not by Bmp4 signaling, whereas smad5 expression is independent of Bmp2b. Also, the dorsalized phenotype of bmp2b-mutant embryos can be rescued by exogenous Smad1, but not by Smad5. Together, these data suggest that smad1 acts later than smad5 and is itself a transcriptional target of Smad5-mediated Bmp2b signaling. During later stages of development, smad1 is expressed in eyes, dorsal cells of rhombomeres 1, 3, and 5, and somites, with highest mRNA levels in the presumptive sclerotome and adaxial regions near the notochord. Injection experiments indicate that this somitic smad1 expression is positively regulated by hedgehog signaling from the dorsal midline, thus perhaps accounting for the recently reported sonic hedgehog-induced competence of sclerotomal cells to Bmp2/4 signals.