In the developing mammalian tooth, the cranial neural crest derived dental mesenchyme consists of the dental papilla and dental follicle. The dental papilla gives rise to odontoblasts and dental pulp and the dental follicle gives rise to the periodontium, including the osteoblasts that contribute to the alveolar process. The alveolar process is a specialized intramembranous bone that forms the primary support structure for the dentition. The Msx1 gene controls many aspects of craniofacial development, as evidenced by craniofacial abnormalities seen in Msx1(-/-) mice, including the arrest of tooth development and the absence of the alveolar bone. Previous studies demonstrated that ectopic expression of Bmp4, a downstream target of Msx1, in the Msx1(-/-) dental mesenchyme rescued alveolar bone formation. Here we confirm an early requirement of BMP activity for alveolar bone formation. We show that the expression of Cbfa1 and Dlx5, two genes encode transcription factors that are critical for bone differentiation, overlaps with that of Msx1 and Bmp4 in the developing tooth and alveolar process. We have demonstrated that Dlx5 and Cbfa1 expression is down-regulated in Msx1(-/-) dental mesenchyme and that Msx1 and Bmp4 expression are unaltered in Cbfa1(-/-) mice. These data place Dlx5 and Cbfa1 downstream from the Msx1/Bmp4 in the genetic pathway that regulates tooth development. Ectopic expression of Bmp4 in Msx1 mutants restores the expression of Dlx5, but not Cbfa1, in the dental mesenchyme, and rescues the expression of both Dlx5 and Cbfa1 in the developing alveolar bone. Therefore, the early expression of Cfba1 in the dental mesenchyme appears dispensable for the development of the alveolar bone. Taken together with in vitro gene induction studies, our results demonstrate that BMP4 controls Dlx5 expression in dental mesenchyme, and functions upstream to both Dlx5 and Cbfa1 to regulate alveolar bone formation during tooth development.