While Bmp4 has a well-established role in the commitment of mesenchymal stem cells into the adipogenic lineage, its role in brown adipocyte formation and activity is not well defined. Here, we show that Bmp4 has a dual function in adipogenesis by inducing adipocyte commitment while inhibiting the acquisition of a brown phenotype during terminal differentiation. Selective brown adipose tissue overexpression of Bmp4 in mice induces a shift from a brown to a white-like adipocyte phenotype. This effect is mediated by Smad signaling and might be in part due to suppression of lipolysis, via regulation of hormone sensitive lipase expression linked to reduced Ppar activity. Given that we observed a strong correlation between BMP4 levels and adipocyte size, as well as insulin sensitivity in humans, we propose that Bmp4 is an important factor in the context of obesity and type 2 diabetes.