We identified Drosophila Smurf (DSmurf) as a negative regulator of signaling by the BMP2/4 ortholog DPP during embryonic dorsal-ventral patterning. DSmurf encodes a HECT domain ubiquitin-protein ligase, homologous to vertebrate Smurf1 and Smurf2, that binds the Smad1/5 ortholog MAD and likely promotes its proteolysis. The essential function of DSmurf is restricted to its action on the DPP pathway. DSmurf has two distinct, possibly mechanistically separate, functions in controlling DPP signaling. Prior to gastrulation, DSmurf mutations cause a spatial increase in the DPP gradient, as evidenced by ventrolateral expansion in expression domains of target genes representing all known signaling thresholds. After gastrulation, DSmurf mutations cause a temporal delay in downregulation of earlier DPP signals, resulting in a lethal defect in hindgut organogenesis.