Bmper, which is orthologous to Drosophila melanogaster crossveinless 2, is a secreted factor that regulates Bmp activity in a tissue- and stage-dependent manner. Both pro- and anti-Bmp activities have been postulated for Bmper, although the molecular mechanisms through which Bmper affects Bmp signaling are unclear. In this paper, we demonstrate that as molar concentrations of Bmper exceed Bmp4, Bmper dynamically switches from an activator to an inhibitor of Bmp4 signaling. Inhibition of Bmp4 through a novel endocytic trap-and-sink mechanism leads to the efficient degradation of Bmper and Bmp4 by the lysosome. Bmper-mediated internalization of Bmp4 reduces the duration and magnitude of Bmp4-dependent Smad signaling. We also determined that Noggin and Gremlin, but not Chordin, trigger endocytosis of Bmps. This endocytic transport pathway expands the extracellular roles of selective Bmp modulators to include intracellular regulation. This dosage-dependent molecular switch resolves discordances among studies that examine how Bmper regulates Bmp activity and has broad implications for Bmp signal regulation by secreted mediators.