Mesenchymal expression of the BMP antagonist NOGGIN during prostate development plays a critical role in pre-natal ventral prostate development and opposes BMP4-mediated inhibition of cell proliferation during postnatal ductal development. Morphologic examination of newborn Noggin-/- male fetuses revealed genitourinary anomalies including cryptorchidism, incomplete separation of the hindgut from the urogenital sinus (UGS), absence of the ventral mesenchymal pad, and a complete loss of ventral prostate (VP) budding. Examination of lobe-specific marker expression in the E14 Noggin-/- UGS rescued by transplantation under the renal capsule of a male nude mouse confirmed a complete loss of VP determination. More modest effects were observed in the other lobes, including decreased number of ductal buds in the dorsal and lateral prostates of newborn Noggin-/- males. BMP4 and BMP7 have been shown to inhibit ductal budding and outgrowth by negatively regulating epithelial cell proliferation. We show here that NOGGIN can neutralize budding inhibition by BMP4 and rescues branching morphogenesis of BMP4-exposed UGS in organ culture and show that the effects of BMP4 and NOGGIN activities converge on P63+ epithelial cells located at nascent duct tips. Together, these studies show that the BMP-NOGGIN axis regulates patterning of the ventral prostate, regulates ductal budding, and controls proliferation of P63+ epithelial cells in the nascent ducts of developing mouse prostate.