Small-molecule Smac mimetics are being developed as a novel class of anticancer drugs. Recent studies have shown that Smac mimetics target cellular inhibitor of apoptosis protein (cIAP)-1/2 for degradation and induce tumor necrosis factor-α (TNFα)–dependent apoptosis in tumor cells. In this study, we have investigated the mechanism of action and therapeutic potential of two different types of novel Smac mimetics, monovalent SM-122 and bivalent SM-164. Our data showed that removal of cIAP-1/2 by Smac mimetics or small interfering RNA is not sufficient for robust TNFα-dependent apoptosis induction, and X-linked inhibitor of apoptosis protein (XIAP) plays a critical role in inhibiting apoptosis induction. Although SM-164 is modestly more effective than SM-122 in induction of cIAP-1/2 degradation, SM-164 is 1,000 times more potent than SM-122 as an inducer of apoptosis in tumor cells, which is attributed to its much higher potency in binding to and antagonizing XIAP. SM-164 induces rapid cIAP-1 degradation and strong apoptosis in the MDA-MB-231 xenograft tumor tissues and achieves tumor regression, but has no toxicity in normal mouse tissues. Our study provides further insights into the mechanism of action for Smac mimetics and regulation of apoptosis by inhibitor of apoptosis proteins. Furthermore, our data provide evidence that SM-164 is a promising new anticancer drug for further evaluation and development. [Cancer Res 2008;68(22):9384–93]