The embryonic formation of midbrain dopaminergic (mDA) neuronsin vivoprovides critical guidelines for thein vitrodifferentiation of mDA neurons from stem cells, which are currently being developed for Parkinson's disease cell replacement therapy. Bone morphogenetic protein (BMP)/SMAD inhibition is routinely used during early steps of stem cell differentiation protocols, including for the generation of mDA neurons. However, the function of the BMP/SMAD pathway forin vivospecification of mammalian mDA neurons is virtually unknown. Here, we report that BMP5/7-deficient mice (Bmp5^−/−;Bmp7^−/−) lack mDA neurons due to reduced neurogenesis in the mDA progenitor domain. As molecular mechanisms accounting for these alterations inBmp5^−/−;Bmp7^−/−mutants, we have identified expression changes of the BMP/SMAD target genes MSX1/2 (msh homeobox 1/2) and SHH (sonic hedgehog). Conditionally inactivating SMAD1 in neural stem cells of micein vivo(Smad1^Nes) hampered the differentiation of progenitor cells into mDA neurons by preventing cell cycle exit, especially of TH⁺SOX6⁺(tyrosine hydroxylase, SRY-box 6) and TH⁺GIRK2⁺(potassium voltage-gated channel subfamily-J member-6) substantia nigra neurons. BMP5/7 robustly increased thein vitrodifferentiation of human induced pluripotent stem cells and induced neural stem cells to mDA neurons by up to threefold. In conclusion, we have identified BMP/SMAD signaling as a novel critical pathway orchestrating essential steps of mammalian mDA neurogenesisin vivothat balances progenitor proliferation and differentiation. Moreover, we demonstrate the potential of BMPs to improve the generation of stem-cell-derived mDA neuronsin vitro, highlighting the importance of sequential BMP/SMAD inhibition and activation in this process.SIGNIFICANCE STATEMENTWe identify bone morphogenetic protein (BMP)/SMAD signaling as a novel essential pathway regulating the development of mammalian midbrain dopaminergic (mDA) neuronsin vivoand provide insights into the molecular mechanisms of this process. BMP5/7 regulate MSX1/2 (msh homeobox 1/2) and SHH (sonic hedgehog) expression to direct mDA neurogenesis. Moreover, the BMP signaling component SMAD1 controls the differentiation of mDA progenitors, particularly to substantia nigra neurons, by directing their cell cycle exit. Importantly, BMP5/7 increase robustly the differentiation of human induced pluripotent and induced neural stem cells to mDA neurons. BMP/SMAD are routinely inhibited in initial stages of stem cell differentiation protocols currently being developed for Parkinson's disease cell replacement therapies. Therefore, our findings on opposing roles of the BMP/SMAD pathway duringin vitromDA neurogenesis might improve these procedures significantly.