Adipose tissue is central to the regulation of energy balance. Two functionally different types of fat are present in mammals white adipose tissue, the primary site of triglyceride storage, and brown adipose tissue, which is specialized in energy expenditure and can counteract obesity. Factors that specify the developmental fate and function of white and brown adipose tissue remain poorly understood. Here we demonstrate that whereas some members of the family of bone morphogenetic proteins (BMPs) support white adipocyte differentiation, BMP7 singularly promotes differentiation of brown preadipocytes even in the absence of the normally required hormonal induction cocktail. BMP7 activates a full program of brown adipogenesis including induction of early regulators of brown fat fate PRDM16 (PR-domain-containing 16; ref. 4) and PGC-1alpha (peroxisome proliferator-activated receptor-gamma (PPARgamma) coactivator-1alpha; ref. 5), increased expression of the brown-fat-defining marker uncoupling protein 1 (UCP1) and adipogenic transcription factors PPARgamma and CCAAT/enhancer-binding proteins (C/EBPs), and induction of mitochondrial biogenesis via p38 mitogen-activated protein (MAP) kinase-(also known as Mapk14) and PGC-1-dependent pathways. Moreover, BMP7 triggers commitment of mesenchymal progenitor cells to a brown adipocyte lineage, and implantation of these cells into nude mice results in development of adipose tissue containing mostly brown adipocytes. Bmp7 knockout embryos show a marked paucity of brown fat and an almost complete absence of UCP1. Adenoviral-mediated expression of BMP7 in mice results in a significant increase in brown, but not white, fat mass and leads to an increase in energy expenditure and a reduction in weight gain. These data reveal an important role of BMP7 in promoting brown adipocyte differentiation and thermogenesis in vivo and in vitro, and provide a potential new therapeutic approach for the treatment of obesity.