The bone morphogenetic protein (BMP) type II receptor (BMPR-II) is predominantly expressed on the vascular endothelium in the adult lung. Although mutations in BMPR-II are known to underlie many cases of familial pulmonary arterial hypertension (FPAH), little is known regarding the expression of BMPs and their signalling pathways during normal lung development or the impact of BMPR-II mutations on endothelial cell function. We determined the cellular localization and expression levels of BMP4, BMP receptors, and activation of downstream signalling via phospho-Smad1 in a developmental series of human embryonic and fetal lungs by immunohistochemistry. The expression of BMP4 and BMP receptors was temporally and spatially regulated during lung development. BMPR-II expression correlated with phosphorylation of tissue Smad1 and was highest during the late pseudoglandular and early canalicular stage of lung development, when vasculogenesis is intense. Phospho-Smad1 expression was associated with markers of proliferation in endothelial cells. In vitro studies confirmed that BMPs 2 and 4 induced phosphorylation of Smad1/5 and pulmonary artery endothelial cell (PAEC) migration and proliferation. Adenoviral transfection of PAECs with mutant kinase-deficient BMPR-II, or siRNA knockdown of BMPR-II, inhibited Smad signalling and the proliferative response to BMP4. Our findings support a critical role for BMPs in lung vasculogenesis. Dysfunctional BMP signalling in PAECs during development may lead to abnormal pulmonary vascular development and contribute to the pathogenesis of FPAH.