The primary glial cells in the retina, the Müller glia, differentiate from retinal progenitors in the first postnatal week. CNTF/LIF/STAT3 signaling has been shown to promote their differentiation; however, another key glial differentiation signal, BMP, has not been examined during this period of Müller glial differentiation. In the course of our analysis of the BMP signaling pathway, we observed a transient wave of Smad1/5/8 signaling in the inner nuclear layer at the end of the first postnatal week, from postnatal day (P) 5 to P9, after the end of neurogenesis. To determine the function of this transient wave, we blocked BMP signaling during this period in vitro or in vivo, using either a BMP receptor antagonist or noggin (Nog). Either treatment leads to a reduction in expression of the Müller glia-specific genes Rlbp1 and Glul, and the failure of many of the Müller glia to repress the bipolar/photoreceptor gene Otx2. These changes in normal Müller glial differentiation result in permanent disruption of the retina, including defects in the outer limiting membrane, rosette formation and a reduction in functional acuity. Our results thus show that Müller glia require a transient BMP signal at the end of neurogenesis to fully repress the neural gene expression program and to promote glial gene expression.