Bone morphogenic protein 7 (BMP7) counteracts physiological epithelial-to-mesenchymal transition, a process that is indicative of epithelial plasticity. Because epithelial-to-mesenchymal transition is involved in cancer, we investigated whether BMP7 plays a role in prostate cancer growth and metastasis. BMP7 expression in laser-microdissected primary human prostate cancer tissue was strongly down-regulated compared with normal prostate luminal epithelium. Furthermore, BMP7 expression in prostate cancer cell lines was inversely related to tumorigenic and metastatic potential in vivo and significantly correlated to E-cadherin/vimentin ratios. Exogenous addition of BMP7 to human prostate cancer cells dose-dependently inhibited transforming growth factor beta-induced activation of nuclear Smad3/4 complexes via ALK5 and induced E-cadherin expression. Moreover, BMP7-induced activation of nuclear Smad1/4/5 signaling transduced via BMP type I receptors was synergistically stimulated in the presence of transforming growth factor beta, a growth factor that is enriched in the bone microenvironment. Daily BMP7 administration to nude mice inhibited the growth of cancer cells in bone. In contrast, no significant growth inhibitory effect of BMP7 was observed in intraprostatic xenografts. Collectively, our observations suggest that BMP7 controls and preserves the epithelial phenotype in the human prostate and underscore a decisive role of the tumor microenvironment in mediating the therapeutic response of BMP7. Thus, BMP7 can still counteract the epithelial-to-mesenchymal transition process in the metastatic tumor, positioning BMP7 as a novel therapeutic molecule for treatment of metastatic bone disease.