THE TGF-β/activin/BMP cytokine family signals through serine/threonine kinase receptors, but how the receptors transduce the signal is unknown. The Mad (Mothers against decapentaplegic) gene from Drosophila¹ and the related Sma genes from Caenorhabditis elegans² have been genetically implicated in signalling by members of the bone-morphogenetic-protein (BMP) subfamily. We have cloned Smad1, a human homologue of Mad and Sma. Microinjection of Smad1 messenger RNA into Xenopus embryo animal caps mimics the mesoderm-ventralizing effects of BMP4. Smad1 moves into the nucleus in response to BMP4. Smad1 has transcriptional activity when fused to a heterologous DNA-binding domain, and this activity is increased by BMP4 acting through BMP-receptor types I and II. The transactivating activity resides in the conserved carboxy-terminal domain of Smad1 and is disrupted by a nonsense mutation that corresponds to null mutations found in Mad and in the related gene DPC4, a candidate tumour-suppressor gene in human pancreatic cancer³. Additionally, we show that DPC4 contains a transcriptional activation domain. The results suggests that the Smad proteins are a new class of transcription factors that mediate responses to the TGF-β family.