Cellular responses to Bmp ligands are regulated at multiple levels, both extracellularly and intracellularly. Therefore, the presence of these growth factors is not an accurate indicator of Bmp signaling activity. While a common approach to detect Bmp signaling activity is to determine the presence of phosphorylated forms of Smad1, 5 and 8 by immunostaining, this approach is time consuming and not quantitative. In order to provide a simpler readout system to examine the presence of Bmp signaling in developing animals, we developed BRE-gal mouse embryonic stem cells and a transgenic mouse line that specifically respond to Bmp ligand stimulation. Our reporter identifies specific transcriptional responses that are mediated by Smad1 and Smad4 with the Schnurri transcription factor complex binding to a conserved Bmp-Responsive Element (BRE), originally identified among Drosophila, Xenopus and human Bmp targets. Our BRE-gal mES cells specifically respond to Bmp ligands at concentrations as low as 5 ng/ml; and BRE-gal reporter mice, derived from the BRE-gal mES cells, show dynamic activity in many cellular sites, including extraembryonic structures and mammary glands, thereby making this a useful scientific tool.