Follistatin-like 1 (Fstl1) is a secreted protein of the BMP inhibitor class. During development, expression of Fstl1 is already found in cleavage stage embryos and becomes gradually restricted to mesenchymal elements of most organs during subsequent development. Knock down experiments in chicken and zebrafish demonstrated a role as a BMP antagonist in early development. To investigate the role of Fstl1 during mouse development, a conditional Fstl1 KO allele as well as a Fstl1-GFP reporter mouse were created. KO mice die at birth from respiratory distress and show multiple defects in lung development. Also, skeletal development is affected. Endochondral bone development, limb patterning as well as patterning of the axial skeleton are perturbed in the absence of Fstl1. Taken together, these observations show that Fstl1 is a crucial regulator in BMP signalling during mouse development.