Signaling by bone morphogenetic proteins is essential for a wide variety of developmental processes. Receptor-regulated Smad proteins, Smads 1 and 5, are intracellular mediators of bone morphogenetic protein signaling. Together with Smad4, these proteins translocate to the nucleus and modulate transcription by binding to specific sequences on the promoters of target genes. We sought to map transcriptional Smad1/5 activity in development by generating embryonic stem cell lines carrying a Smad1/5-specific response element derived from the Id1 promoter coupled to beta-galactosidase or luciferase as reporters. Three independent lines (BRE-lac1, BRE-lac2 and BRE-luc) have shown the existence of an autocrine bone morphogenetic protein signaling pathway in mouse embryonic stem cells. Reporter activity was detected in chimeric embryos, suggesting sensitivity to physiological concentrations of bone morphogenetic protein. Reporter activity in embryos from transgenic mouse lines was detected in tissues where an essential role for active bone morphogenetic protein signaling via Smads 1 or 5 had been previously established. We have thus generated, for the first time, an in vivo readout for studying the role of Smad1/5-mediated transcriptional activity in development.