During endoplasmic reticulum-associated degradation (ERAD), the cytoplasmic enzyme <italic>N</italic>-glycanase 1 (NGLY1) is proposed to remove <italic>N</italic>-glycans from misfolded <italic>N</italic>-glycoproteins after their retrotranslocation from the ER to the cytosol. We previously reported that NGLY1 regulates <italic>Drosophila</italic> BMP signaling in a tissue-specific manner (Galeone et al., 2017). Here, we establish the <italic>Drosophila</italic> Dpp and its mouse ortholog BMP4 as biologically relevant targets of NGLY1 and find, unexpectedly, that NGLY1-mediated deglycosylation of misfolded BMP4 is required for its retrotranslocation. Accumulation of misfolded BMP4 in the ER results in ER stress and prompts the ER recruitment of NGLY1. The ER-associated NGLY1 then deglycosylates misfolded BMP4 molecules to promote their retrotranslocation and proteasomal degradation, thereby allowing properly-folded BMP4 molecules to proceed through the secretory pathway and activate signaling in other cells. Our study redefines the role of NGLY1 during ERAD and suggests that impaired BMP4 signaling might underlie some of the NGLY1 deficiency patient phenotypes.