Iron homeostasis is tightly regulated to balance the iron requirement for erythropoiesis and other vital cellular functions, while preventing cellular injury from iron excess. The liver hormone hepcidin is the master regulator of systemic iron balance by controlling the degradation and function of the sole known mammalian iron exporter ferroportin. Liver hepcidin expression is coordinately regulated by several signals that indicate the need for more or less iron, including plasma and tissue iron levels, inflammation, and erythropoietic drive. Most of these signals regulate hepcidin expression by modulating the activity of the bone morphogenetic protein (BMP)‐SMAD pathway, which controls hepcidin transcription. Genetic disorders of iron overload and iron deficiency have identified several hepatocyte membrane proteins that play a critical role in mediating the BMP‐SMAD and hepcidin regulatory response to iron. However, the precise molecular mechanisms by which serum and tissue iron levels are sensed to regulate BMP ligand production and promote the physical and/or functional interaction of these proteins to modulate SMAD signaling and hepcidin expression remain uncertain. This critical commentary will focus on the current understanding and key unanswered questions regarding how the liver senses iron levels to regulate BMP‐SMAD signaling and thereby hepcidin expression to control systemic iron homeostasis.