Bone morphogenetic proteins (BMPs) and their endogenous antagonists are important for brain and bone development and tumor initiation and progression. Heparan sulfate (HS) proteoglycans (HSPG) modulate the activities of BMPs and their antagonists. How glycosaminoglycans (GAGs) influence BMP activity in various malignancies and in inherited abnormalities of GAG metabolism, and the structural features of GAGs essential for modulation of BMP signaling, remain incompletely defined. We examined whether chemically modified soluble heparins, the endogenous HS in malignant cells and the HS accumulated in Hurler syndrome cells influence BMP-4 signaling and activity. We show that both exogenous (soluble) and endogenous GAGs modulate BMP-4 signaling and activity, and that this effect is dependent on specific sulfate residues of GAGs. Our studies suggest that endogenous sulfated GAGs promote the proliferation and impair differentiation of malignant human cells, providing the rationale for investigating whether pharmacological agents that inhibit GAG synthesis or function might reverse this effect. Our demonstration of impairment of BMP-4 signaling by GAGs in multipotent stem cells in human Hurler syndrome identifies a mechanism that might contribute to the progressive neurological and skeletal abnormalities in Hurler syndrome and related mucopolysaccharidoses.