MDS is characterized by ineffective hematopoiesis that leads to peripheral cytopenias. Development of effective treatments has been impeded by limited insight into pathogenic pathways governing dysplastic growth of hematopoietic progenitors. We demonstrate that smad2, a downstream mediator of transforming growth factor–β (TGF-β) receptor I kinase (TBRI) activation, is constitutively activated in MDS bone marrow (BM) precursors and is overexpressed in gene expression profiles of MDS CD34⁺ cells, providing direct evidence of overactivation of TGF-β pathway in this disease. Suppression of the TGF-β signaling by lentiviral shRNA-mediated down-regulation of TBRI leads to in vitro enhancement of hematopoiesis in MDS progenitors. Pharmacologic inhibition of TBRI (alk5) kinase by a small molecule inhibitor, SD-208, inhibits smad2 activation in hematopoietic progenitors, suppresses TGF-β–mediated gene activation in BM stromal cells, and reverses TGF-β–mediated cell-cycle arrest in BM CD34⁺ cells. Furthermore, SD-208 treatment alleviates anemia and stimulates hematopoiesis in vivo in a novel murine model of bone marrow failure generated by constitutive hepatic expression of TGF-β1. Moreover, in vitro pharmacologic inhibition of TBRI kinase leads to enhancement of hematopoiesis in varied morphologic MDS subtypes. These data directly implicate TGF-β signaling in the pathobiology of ineffective hematopoiesis and identify TBRI as a potential therapeutic target in low-risk MDS.