Bone morphogenetic protein (BMP) pathways are required for a wide variety of developmental and homeostatic decisions, and mutations in signaling components are associated with several diseases. An important aspect of BMP control is the extracellular regulation of these pathways. We show that LON-2 negatively regulates a BMP-like signaling pathway that controls body length in C. elegans. lon-2 acts genetically upstream of the BMP-like gene dbl-1, and loss of lon-2 function results in animals that are longer than normal. LON-2 is a conserved member of the glypican family of heparan sulfate proteoglycans, a family with several members known to regulate growth-factor signaling in many organisms. LON-2 is functionally conserved because the Drosophila glypican gene dally rescues the lon-2(lf) body-size defect. We show that the LON-2 protein binds BMP2 in vitro, and a mutant variation of LON-2 found in lon-2(e2140) animals diminishes this interaction. We propose that LON-2 binding to DBL-1 negatively regulates this pathway in C. elegans by attenuating ligand-receptor interactions. This is the first report of a glypican directly interacting with a growth-factor pathway in C. elegans and provides a mechanistic model for glypican regulation of growth-factor pathways.