BMP activity is essential for many steps of neural development, including the initial role in neural induction and the control of progenitor identities along the dorsal-ventral axis of the neural tube. Taking advantage of chick in ovo electroporation, we show a novel role for BMP7 at the time of neurogenesis initiation in the spinal cord. Using in vivo loss-of-function experiments, we show that BMP7 activity is required for the generation of three discrete subpopulations of dorsal interneurons: dI1-dI3-dI5. Analysis of the BMP7 mouse mutant shows the conservation of this activity in mammals. Furthermore, this BMP7 activity appears to be mediated by the canonical Smad pathway, as we demonstrate that Smad1 and Smad5 activities are similarly required for the generation of dI1-dI3-dI5. Moreover, we show that this role is independent of the patterned expression of progenitor proteins in the dorsal spinal cord, but depends on the BMP/Smad regulation of specific proneural proteins, thus narrowing this BMP7 activity to the time of neurogenesis. Together, these data establish a novel role for BMP7 in primary neurogenesis, the process by which a neural progenitor exits the cell cycle and enters the terminal differentiation pathway.