Cells need to accurately decode and integrate information from signalling molecules to regulate cellular processes during development and adult homeostasis. The highly conserved Bone Morphogenetic Protein (BMP) signalling pathway is essential during development. In the Drosophila embryo, a gradient of BMP signalling patterns the dorsal ectoderm through the differential regulation of gene expression. It is well established that spatial patterns of gene expression underpin the specification of different cell types. However, the temporal dynamics with which cells respond to cell signals at the transcriptional level is poorly understood. This project aims to investigate how the BMP signalling gradient is decoded at single-cell resolution to generate transcriptional responses. This is accomplished through the use of quantitative live and fixed imaging complemented with computational modelling of burst kinetics. Static images reveal a graded transcriptional response to the BMP gradient, depending on a cell's position within the expression domain. Highest mRNA numbers are found in cells residing in regions exposed to peak BMP signalling levels. In contrast, some cells at the expression domain border are unable to maintain active transcription from both alleles resulting in reduced transcript numbers per cell. Moreover, evidence is provided that expression of a BMP target gene from both alleles in response to peak signalling requires the full complement of early embryonic enhancers. Correspondingly, investigation of transcriptional bursting parameters, based on live imaging of endogenous BMP target gene loci, showed that cells receiving low BMP signalling levels have poor transcriptional burst kinetics that generate only short, low frequency bursts. The burst profiles of two BMP target genes, u-shaped and hindsight, differ significantly in their profiles but both decode BMP signalling levels by modulating promoter occupancy and burst amplitude, suggesting a common mechanism for BMP gradient interpretation. Furthermore, BMP signalling influences promoter occupancy even in the presence of a heterologous promoter, suggesting that the signal is interpreted by the enhancer, which in turn regulates the rate at which the target promoter switches on. In terms of the promoter's contribution to transcriptional bursting, data is presented that the promoter sequence regulates the transcriptional response primarily by altering burst amplitude. Based on these findings a mRNA threshold model is proposed in which a minimum number of mRNA molecules needs to be produced to ensure robustness of cell fate decisions. Moreover, the results presented here provide a platform for understanding how signals are decoded by individual cells in other contexts during both development and adult homeostasis.