Previous results have shown that Bone Morphogenetic Protein (BMP) signaling is essential for lens specification and differentiation. How BMP signals are regulated in the prospective lens ectoderm is not well defined. To address this issue we have modulated BMP activity in a chicken embryo pre-lens ectoderm explant assay, and also studied transgenic mice, in which the type I BMP receptors, Bmpr1a and Acvr1, are deleted from the prospective lens ectoderm. Our results show that chicken embryo pre-lens ectoderm cells express BMPs and require BMP signaling for lens specification in vitro, and that in vivo inhibition of BMP signals in the mouse prospective lens ectoderm interrupts lens placode formation and prevents lens invagination. Furthermore, our results provide evidence that BMP expression is negatively auto-regulated in the lens-forming ectoderm, decreasing when the tissue is exposed to exogenous BMPs and increasing when BMP signaling is prevented. In addition, eyes lacking BMP receptors in the prospective lens placode develop coloboma in the adjacent wild type optic cup. In these eyes, Bmp7 expression increases in the ventral optic cup and the normal dorsal-ventral gradient of BMP signaling in the optic cup is disrupted. Pax2 becomes undetectable and expression of Sfrp2 increases in the ventral optic cup, suggesting that increased BMP signaling alter their expression, resulting in failure to close the optic fissure. In summary, our results suggest that negative and positive auto-regulation of BMP expression is important to regulate early eye development.