In vertebrates, a bone morphogenetic protein (BMP) signaling pathway patterns all ventral cell fates along the embryonic axis. BMP activity is positively regulated by Tolloid, a metalloprotease, that can eliminate the activity of the BMP antagonist Chordin. A tolloid mutant in zebrafish, mini fin (mfn), exhibits a specific loss of ventral tail tissues. Here, we investigate the spatial and temporal requirements for Tolloid (Mfn) in dorsoventral patterning of the tail. Through chimeric analyses, we found that Tolloid (Mfn) functions cell non-autonomously in the ventral-most vegetal cells of the gastrula or their derivatives. We generated a tolloid transgene under the control of the inducible hsp70 promoter and demonstrate that tolloid (mfn) is first required at the completion of gastrulation. Although tolloid is expressed during gastrulation and dorsally and ventrally within the tail bud, our results indicate that Tolloid (Mfn) acts specifically in the ventral tail bud during a approximately 4 h period extending from the completion of gastrulation to early somitogenesis stages to regulate BMP signaling. Examination of the temporal requirements of Chordin activity by overexpression of the hsp70-tolloid transgene indicates that Chordin is required both during and after gastrulation for proper patterning of the tail, contrasting Tld's requirement only during post-gastrula stages. We hypothesize that the gastrula role of Chordin in tail patterning is to generate the proper size domains of cells to enter the ventral and dorsal tail bud, whereas post-gastrula Chordin activity patterns the derivatives of the tail bud. Thus, fine modulation of BMP signaling levels through the negative and positive actions of Chordin and Tolloid, respectively, patterns tail tissues.