Bone morphogenetic proteins (BMPs) play essential roles in the control of skin development, postnatal tissue remodelling and tumorigenesis. To explore whether some of the effects of BMP signalling are mediated by microRNAs, we performed genome-wide microRNA (miRNA) screening in primary mouse keratinocytes after BMP4 treatment. Microarray analysis revealed substantial BMP4-dependent changes in the expression of distinct miRNAs, including miR-21. Real-time PCR confirmed that BMP4 dramatically inhibits miR-21 expression in the keratinocytes. Consistently, significantly increased levels of miR-21 were observed in transgenic mice overexpressing the BMP antagonist noggin under control of the K14 promoter (K14-noggin). By in situ hybridization, miR-21 expression was observed in the epidermis and hair follicle epithelium in normal mouse skin. In K14-noggin skin, miR-21 was prominently expressed in the epidermis, as well as in the peripheral portion of trichofolliculoma-like hair follicle-derived tumours that contain proliferating and poorly differentiated cells. By transfecting keratinocytes with a miR-21 mimic, we identified the existence of two groups of the BMP target genes, which are differentially regulated by miR-21. These included selected BMP-dependent tumour-suppressor genes (Pten, Pdcd4, Timp3 and Tpm1) negatively regulated by miR-21, as well as miR-21-independent Id1, Id2, Id3 and Msx2 that predominantly mediate the effects of BMPs on cell differentiation. In primary keratinocytes and HaCaT cells, miR-21 prevented the inhibitory effects of BMP4 on cell proliferation and migration. Thus, our study establishes a novel mechanism for the regulation of BMP-induced effects in the skin and suggests miRNAs are important modulators of the effects of growth factor signalling pathways on skin development and tumorigenesis.