Bone morphogenetic proteins (BMPs) are synthesized as proproteins that undergo proteolytic processing by furin/subtilisin proprotein convertases to release the active ligand. Here we study processing of BMP5/6/7/8 proteins, including the Drosophila orthologs Glass Bottom Boat (Gbb) and Screw (Scw) and human BMP7. Gbb and Scw have three functional furin/subtilisin proprotein convertase cleavage sites; two between the prodomain and ligand domain, which we call the Main and Shadow sites, and one within the prodomain, which we call the Pro site. In Gbb each site can be cleaved independently, although efficient cleavage at the Shadow site requires cleavage at the Main site, and remarkably, none of the sites is essential for Gbb function. Rather, Gbb must be processed at either the Pro or Main site to produce a functional ligand. Like Gbb, the Pro and Main sites in Scw can be cleaved independently, but cleavage at the Shadow site is dependent on cleavage at the Main site. However, both Pro and Main sites are essential for Scw function. Thus, Gbb and Scw have different processing requirements. The BMP7 ligand rescues gbb mutants in Drosophila, but full-length BMP7 cannot, showing that functional differences in the prodomain limit the BMP7 activity in flies. Furthermore, unlike Gbb, cleavage-resistant BMP7, although non-functional in rescue assays, activates the downstream signaling cascade and thus retains some functionality. Our data show that cleavage requirements evolve rapidly, supporting the notion that changes in post-translational processing are used to create functional diversity between BMPs within and between species. © 2012 by The American Society for Biochemistry and Molecular Biology Inc.