Three closely related mammalian R-Smads, namely Smad1, Smad5 and Smad8, are activated by BMP receptors. Here we have taken a genetic approach to further dissect their possibly unique and/or shared roles during early mouse development. A Smad8.LacZ reporter allele was created to visualize Smad8 expression domains. Smad8 is initially expressed only in the visceral yolk sac (VYS) endoderm and shows a highly restricted pattern of expression in the embryo proper at later stages. In addition, Smad8 conditional and null alleles were engineered. All alleles clearly demonstrate that adult Smad8 homozygous mutants are viable and fertile. To elucidate gene dosage effects, we manipulated expression ratios of the three BMP R-Smads. Smad8 homozygotes also lacking one copy of Smad1 or Smad5 did not exhibit overt phenotypes, and the tissue disturbances seen in Smad1 or Smad5 null embryos were not exacerbated in the absence of Smad8. However, we discovered a profound genetic interaction between Smad1 and Smad5. Thus, as for Smad1 and Smad5 mutant embryos, Smad1+/-:Smad5+/- double heterozygotes die by E10.5 and display defects in allantois morphogenesis, cardiac looping and primordial germ cell (PGC) specification. These experiments demonstrate for the first time that Smad1 and Smad5 function cooperatively to govern BMP target gene expression in the early mammalian embryo.