Stromal-epithelial signaling is a critical regulator of normal prostate development and has been speculated to play an equally important role in the development and progression of prostate cancer. Sonic hedgehog (Shh) and bone morphogenetic proteins (BMP-4, BMP-7), expressed by the urogenital sinus epithelium and mesenchyme, exert reciprocal and coordinate effects on outgrowth of nascent prostate ducts. Over-expression of Shh in the LNCaP xenograft was shown previously to accelerate tumor growth by a paracrine mechanism. A survey of BMP regulators expressed in the developing prostate revealed increased Noggin and BMP-7 mRNA in the stromal component of Shh over-expressing xenografts. In vitro studies demonstrated that treatment of LNCaP cells with BMP-4 and BMP-s7 induced Id-1 expression and inhibited tumor cell proliferation. The activity of BMP-4 was abrogated by co-addition of Noggin; the activity of BMP-7 was not. Quantitative analysis of BMP signaling revealed ambivalent results: decreased tumor cell expression of the BMP response gene Id-1 but increased staining for phospho-SMAD 1,5, 8. To directly test whether increased xenograft tumor growth could be explained by Noggin-mediated blockade of BMP-2/4 effects on tumor cell proliferation, we generated LNCaP xenografts containing stromal cells over-expressing Noggin. Tumor cells in these xenografts exhibited decreased Id-1 and reduced SMAD phosphorylation, but tumor growth was not altered. We conclude that tumor cell Shh expression can induce significant changes in expression of BMP ligands and inhibitors in the stromal microenvironment but that acceleration of LNCaP xenograft tumor growth by Shh over-expression cannot be attributed solely to increased Noggin expression in the tumor stroma.