In zebrafish, BMP signaling establishes cell identity along the dorsoventral (DV) axis during gastrulation. Owing to the early requirements of BMP activity in DV patterning, it has been difficult to assign later roles in cell fate specification to specific BMP ligands. In this study, we have taken advantage of two follistatin-like genes (fstl1 and fstl2), as well as a transgenic zebrafish line carrying an inducible truncated form of the BMP-type 1 receptor to study the role of Bmp4 outside of the context of DV specification. Characterization of fstl1/2 suggests that they exert a redundant role as BMP antagonists during late gastrulation,regulating BMP activity in axial mesoderm. Maintenance of appropriate levels of BMP signaling is crucial for the proper development of chordamesoderm, a subset of axial mesoderm that gives rise to the notochord, but not prechordal mesoderm, which gives rise to the prechordal plate. Bmp4 activity in particular is required during a crucial window beginning at late gastrulation and lasting through early somitogenesis to promote chordamesoderm proliferation. In the absence of Bmp4, the notochord precursor pool is depleted, and the notochord differentiates prematurely. Our results illustrate a role for Bmp4 in the proliferation and timely differentiation of axial tissue after DV axis specification.