Morphogen signals are essential for cell fate specification during embryogenesis. Some receptors that sense these morphogens are known to localize to only the apical or basolateral membrane of polarized cell lines in vitro. How such localization affects morphogen sensing and patterning in the developing embryo remains unknown. Here, we show that the formation of a robust BMP signaling gradient in the early mouse embryo depends on the restricted, basolateral localization of BMP receptors. The mis-localization of receptors to the apical membrane results in ectopic BMP signaling in the mouse epiblast in vivo. With evidence from mathematical modeling, human embryonic stem cells in vitro, and mouse embryos in vivo, we find that the geometric compartmentalization of BMP receptors and ligands creates a signaling gradient that is buffered against fluctuations. Our results demonstrate the importance of receptor localization and embryo geometry in shaping morphogen signaling during embryogenesis.