The protein encoded by this gene is a member of the TGF-β superfamily. Like other members of the bone morphogenetic protein family of proteins, it plays a key role in the transformation of mesenchymal cells into bone and cartilage. It is inhibited by noggin and a similar protein, chordin, which are expressed in the Spemann-Mangold Organizer. BMP7 may be involved in bone homeostasis. It is expressed in the brain, kidneys and bladder.

BMP7 has been discovered to be crucial in the determination of ventral-dorsal organization in zebrafish. BMP7 causes the expression of ventral phenotypes while its complete inhibition creates a dorsal phenotype. Moreover, BMP7 is eventually partially "turned off" in embryonic development in order to create the dorsal parts of the organism.