The mandibular arch (BA1) is critical for craniofacial development. The distal region of BA1, which gives rise to most of the mandible, is dependent upon an optimal level of bone morphogenetic protein (BMP) signaling. BMP activity is modulated in the extracellular space by BMP-binding proteins such as Twisted gastrulation (TWSG1). Twsg1(-/-) mice have a spectrum of craniofacial phenotypes, including mandibular defects that range from micrognathia to agnathia. At E9.5, the distal region of the mutant BA1 was prematurely and variably fused with loss of distal markers eHand and Msx1. Expression of proximal markers Fgf8 and Barx1 was expanded across the fused BA1. The expression of Bmp4 and Msx2 was preserved in the distal region, but shifted ventrally. While wild type embryos showed a gradient of BMP signaling with higher activity in the distal region of BA1, this gradient was disrupted and shifted ventrally in the mutants. Thus, loss of TWSG1 results in disruption of the BMP4 gradient at the level of signaling activity as well as mRNA expression. Altered distribution of BMP signaling leads to a shift in gene expression and increase in apoptosis. The extent of apoptosis may account for the variable degree of mandibular defects in Twsg1 mutants.