Bone morphogenetic proteins (Bmps) are members of the transforming growth factor beta (TGFbeta) superfamily that play critical roles during mouse embryogenesis. Signaling by Bmp receptors is mediated mainly by Smad proteins. In this study, we show that a targeted null mutation of Ecsit, encoding a signaling intermediate of the Toll pathway, leads to reduced cell proliferation, altered epiblast patterning, impairment of mesoderm formation, and embryonic lethality at embryonic day 7.5 (E7.5), phenotypes that mimic the Bmp receptor type1a (Bmpr1a) null mutant. In addition, specific Bmp target gene expression is abolished in the absence of Ecsit. Biochemical analysis demonstrates that Ecsit associates constitutively with Smad4 and associates with Smad1 in a Bmp-inducible manner. Together with Smad1 and Smad4, Ecsit binds to the promoter of specific Bmp target genes. Finally, knock-down of Ecsit with Ecsit-specific short hairpin RNA inhibits both Bmp and Toll signaling. Therefore, these results show that Ecsit functions as an essential component in two important signal transduction pathways and establishes a novel role for Ecsit as a cofactor for Smad proteins in the Bmp signaling pathway.