Bone morphogenetic proteins (BMPs) are a class of morphogens that are critical regulators of the central nervous system (CNS), peripheral nervous system, and craniofacial development. Modulation of BMP signaling also appears to be an important component of the postnatal stem cell niche. However, describing a comprehensive model of BMP actions is complicated by their paradoxical effects in precursor cells, which include dorsal specification, promoting proliferation or mitotic arrest, cell survival or death, and neuronal or glial fate. In addition, in postmitotic neurons BMPs can promote dendritic growth, act as axonal chemorepellants, and stabilize synapses. Although many of these responses depend on interactions with other incoming signals, some reflect the recruitment of distinct BMP signal transduction pathways. In this review, we classify the diverse effects of BMPs on neural cells, focus on the known mechanisms that specify distinct responses, and discuss the remaining challenges in identifying the cellular basis of BMP pleiotropism. Addressing these issues may have importance for stem cell mobilization, differentiation, and cell integration/survival in reparative therapies.