Arterial calcification is ubiquitous in vascular disease and is, in part, prevented by matrix Gla protein (MGP). MGP binds calcium ions through gamma-carboxylated glutamates (Gla residues) and inhibits bone morphogenetic protein (BMP)-2/-4. We hypothesized that a conserved proline (Pro)64 is essential for BMP inhibition. We further hypothesized that calcium binding by the Gla residues is a prerequisite for BMP inhibition. Site-directed mutagenesis was used to modify Pro64 and the Gla residues, and the effect on BMP-4 activity, and binding of BMP-4 and calcium was tested using luciferase reporter gene assays, coimmunoprecipitation, crosslinking, and calcium quantification. The results showed that Pro64 was critical for binding and inhibition of BMP-4 but not for calcium binding. The Gla residues were also required for BMP-4 binding but flexibility existed. As long as 1 Gla residue remained on each side of Pro64, the ability to bind and inhibit BMP-4 was preserved. Chelation of calcium ions by EDTA or warfarin treatment of cells led to loss of ability of MGP to bind BMP-4. Our results also showed that phenylalanine could replace Pro64 without loss of function and that zebrafish MGP, which lacks upstream Gla residues, did not function as a BMP inhibitor. The effect of MGP mutagenesis on vascular calcification was determined in calcifying vascular cells. Only MGP proteins with preserved ability to bind and inhibit BMP-4 prevented osteogenic differentiation and calcification. Together, our results suggest that BMP and calcium binding in MGP are independent but functionally intertwined processes and that the BMP binding is essential for prevention of vascular calcification.