Gradients of vascular endothelial growth factor (VEGF) induce single endothelial cells to become leading tip cells of emerging angiogenic sprouts. Tip cells then suppress tip-cell features in adjacent stalk cells via Dll4/Notch-mediated lateral inhibition. We report here that Smad1/Smad5-mediated BMP signaling synergizes with Notch signaling during selection of tip and stalk cells. Endothelium-specific inactivation of Smad1/Smad5 in mouse embryos results in impaired Dll4/Notch signaling and increased numbers of tip-cell-like cells at the expense of stalk cells. Smad1/5 downregulation in cultured endothelial cells reduced the expression of several target genes of Notch and of other stalk-cell-enriched transcripts (Hes1, Hey1, Jagged1, VEGFR1, and Id1-3). Moreover, Id proteins act as competence factors for stalk cells and form complexes with Hes1, which augment Hes1 levels in the endothelium. Our findings provide in vivo evidence for a regulatory loop between BMP/TGFβ-Smad1/5 and Notch signaling that orchestrates tip- versus stalk-cell selection and vessel plasticity.