Morphogenetic protein 2 (BMP-2) is normally expressed in the embryo promoting the development of several organs. Aberrant expression of BMP-2 occurs in approximately 98% of lung carcinomas, however, its role in regulating tumor growth is poorly understood. We show that BMP-2 induces Id-1 expression in lung cancer cell lines through its activation of Smad-1/5, which is dependent on cell culture conditions. A549 cells in DMEM/5% FCS BMP-2 activated Smad-1/5 and caused a transient increase in proliferation. In serum-free medium, BMP-2 induced significantly less Smad-1/5 activation and Id-1 expression, and produced significant growth inhibition. The affect of BMP-2 on tumor growth in vivo was substantially more significant. Recombinant BMP-2 coinjected with A549 cells, into nude mice increased proliferation and produced an increase in Id-1 expression. Forced expression of BMP-2 in A549 cells significantly enhanced tumor growth in the lungs following intravenous injection but not of subcutaneous tumors. Tumors in the lung were found to have an activated Smad-1/5 and expressed Id-1. Subcutaneous tumors expressed less activated Smad-1/5 and Id-1 than that of controls. Human lung carcinomas were also found to express an activated Smad-1/5 and Id-1. We provide evidence that BMP-2 promotes tumor growth. This paper highlights that cell culture experiments may not reveal the full biological affects of BMP-2, and its activity varies depending of the local environment.