The mammalian foregut gives rise to the dorsally located esophagus and stomach and the ventrally located trachea and lung. Proper patterning and morphogenesis of the common foregut tube and its derived organs is essential for viability of the organism at birth. Here, we show that conditional inactivation of BMP type I receptor genes Bmpr1a and Bmpr1b (Bmpr1a;b) in the ventral endoderm leads to tracheal agenesis and ectopic primary bronchi. Molecular analyses of these mutants reveal a reduction of ventral endoderm marker NKX2-1 and an expansion of dorsal markers SOX2 and P63 into the prospective trachea and primary bronchi. Subsequent genetic experiments show that activation of canonical WNT signaling, previously shown to induce ectopic respiratory fate in otherwise wild-type mice, is incapable of promoting respiratory fate in the absence of Bmpr1a;b. Furthermore, we find that inactivation of Sox2 in Bmpr1a;b mutants does not suppress ectopic lung budding but does rescue trachea formation and NKX2-1 expression. Together, our data suggest that signaling through BMPR1A;B performs at least two roles in early respiratory development: first, it promotes tracheal formation through repression of Sox2; and second, it restricts the site of lung bud initiation.