The specification of the neural crest progenitor cell (NCPC) population in the early vertebrate embryo requires an elaborate network of signaling pathways, one of which is the Bone Morphogenetic Protein (BMP) pathway. Based on alterations in neural crest gene expression in zebrafish BMP pathway component mutants, we previously proposed a model in which the gastrula BMP morphogen gradient establishes an intermediate level of BMP activity establishing the future NCPC domain. Here, we tested this model and show that an intermediate level of BMP signaling acts directly to specify the NCPC. We quantified the effects of reducing BMP signaling on the number of neural crest cells and show that neural crest cells are significantly increased when BMP signaling is reduced and that this increase is not due to an increase in cell proliferation. In contrast, when BMP signaling is eliminated, NCPC fail to be specified. We modulated BMP signaling levels in BMP pathway mutants with expanded or no NCPCs to demonstrate that an intermediate level of BMP signaling specifies the NCPC. We further investigated the ability of Smad5 to act in a graded fashion by injecting smad5 antisense morpholinos and show that increasing doses first expand the NCPCs and then cause a loss of NCPCs, consistent with Smad5 acting directly in neural crest progenitor specification. Using Western blot analysis, we show that P-Smad5 levels are dose-dependently reduced in smad5 morphants, consistent with an intermediate level of BMP signaling acting through Smad5 to specify the neural crest progenitors. Finally, we performed chimeric analysis to demonstrate for the first time that BMP signal reception is required directly by NCPCs for their specification. Together these results add substantial evidence to a model in which graded BMP signaling acts as a morphogen to pattern the ectoderm, with an intermediate level acting in neural crest specification.