The role of target-derived BMP signaling in development of sensory ganglia and the sensory innervation of the skin was examined in transgenic animals that overexpress either the BMP inhibitor noggin or BMP4 under the control of a keratin 14 (K14) promoter. Overexpression of noggin resulted in a significant increase in the number of neurons in the trigeminal and dorsal root ganglia. Conversely, overexpression of BMP4 resulted in a significant decrease in the number of dorsal root ganglion neurons. There was no significant change in proliferation of trigeminal ganglion neurons in the noggin transgenic animals, and neuron numbers did not undergo the normal developmental decrease between E12.5 and the adult, suggesting that programmed cell death was decreased in these animals. The increase in neuron numbers in the K14-noggin animals was followed by an extraordinary increase in the density of innervation in the skin and a marked change in the pattern of innervation by different types of fibers. Conversely, the density of innervation of the skin was decreased in the BMP4 overexpressing animals. Further Merkel cells and their innervation were increased in the K14-noggin mice and decreased in the K14-BMP4 mice. The changes in neuron numbers and the density of innervation were not accompanied by a change in the levels of neurotrophins in the skin. These findings indicate that the normal developmental decrease in neuron numbers in sensory ganglia depends upon BMP signaling, and that BMPs may limit both the final neuron number in sensory ganglia as well as the extent of innervation of targets. Coupled with prior observations, this suggests that BMP signaling may regulate the acquisition of dependence of neurons on neurotrophins for survival, as well as their dependence on target-derived neurotrophins for determining the density of innervation of the target.