During germ-band extension, Decapentaplegic (Dpp) signals from the dorsal ectoderm to maintain Tinman (Tin) expression in the underlying mesoderm. This signal specifies the cardiac field, and homologous genes (BMP2/4 and Nkx2.5) perform this function in mammals. We showed previously that a second Dpp signal from the dorsal ectoderm restricts the number of pericardial cells expressing the transcription factor Zfh1. Here we report that, via Zfh1, the second Dpp signal restricts the number of Odd-skipped-expressing and the number of Tin-expressing pericardial cells. Dpp also represses Tin expression independently of Zfh1, implicating a feed-forward mechanism in the regulation of Tin pericardial cell number. In the adjacent dorsal muscles, Dpp has the opposite effect. Dpp maintains Krüppel and Even-skipped expression required for muscle development. Our data show that Dpp refines the cardiac field by limiting the number of pericardial cells. This maintains the boundary between pericardial and dorsal muscle cells and defines the size of the heart. In the absence of the second Dpp signal, pericardial cells overgrow and this significantly reduces larval cardiac output. Our study suggests the existence of a second round of BMP signaling in mammalian heart development and that perhaps defects in this signal play a role in congenital heart defects.