Genetic evidence suggests that the Drosophila ectoderm is patterned by a spatial gradient of bone morphogenetic protein (BMP). Here we compare patterns of two related cellular responses, both signal-dependent phosphorylation of the BMP-regulated R-SMAD, MAD, and signal-dependent changes in levels and sub-cellular distribution of the co-SMAD Medea. Our data demonstrate that nuclear accumulation of the co-SMAD Medea requires a BMP signal during blastoderm and gastrula stages. During this period, nuclear co-SMAD responses occur in three distinct patterns. At the end of blastoderm, a broad dorsal domain of weak SMAD response is detected. During early gastrulation, this domain narrows to a thin stripe of strong SMAD response at the dorsal midline. SMAD response levels continue to rise in the dorsal midline region during gastrulation, and flanking plateaus of weak responses are detected in dorsolateral cells. Thus, the thresholds for gene expression responses are implicit in the levels of SMAD responses during gastrulation. Both BMP ligands, DPP and Screw, are required for nuclear co-SMAD responses during these stages. The BMP antagonist Short gastrulation (SOG) is required to elevate peak responses at the dorsal midline as well as to depress responses in dorsolateral cells. The midline SMAD response gradient can form in embryos with reduced dpp gene dosage, but the peak level is reduced. These data support a model in which weak BMP activity during blastoderm defines the boundary between ventral neurogenic ectoderm and dorsal ectoderm. Subsequently, BMP activity creates a step gradient of SMAD responses that patterns the amnioserosa and dorsomedial ectoderm.