Mice mutant for the TGF-beta family member, nodal, lack mesoderm and die between E8.5 and E9.5. The short ear-lethal (se(l) ) mutation, a deletion that eliminates Bmp-5, causes a strikingly similar gastrulation defect. Here we analyze se(l);nodal compound mutants and find a dosage effect. Embryos homozygous for one mutation show distinct gastrulation stage defects that depend on whether they are heterozygous or homozygous for the other mutation. Embryos mutant for nodal or se(l);nodal compound mutants fail to execute an antigenic shift indicative of mesoderm differentiation and ectoderm cells are shunted into an apoptotic pathway. Furthermore, we find a novel phenotype in se(l);nodal double mutant litters, in which two to four genetically different embryos are contained within the same deciduum. Both the gastrulation and implantation phenotypes can also arise in short ear-viable (se(v) ) and se(v); nodal mutant mice. These data indicate that loss of Bmp-5 may underlie the se(l) gastrulation phenotype and suggest that nodal and Bmp-5 interact during murine mesoderm formation. Our data also reveal an unsuspected role for Bmp-5 in implantation and the decidual response in the mouse.