Transforming growth factor  (TGF-) signals from membrane to nucleus through serine/threonine kinase receptors and their downstream effector molecules, termed Smad proteins. Recently, Smad6 and Smad7 were identified, which antagonize TGF- family signaling by preventing the activation of signal-transducing Smad complexes. Here we report that Smad7, but not Smad6, inhibits TGF-1-induced growth inhibition and the expression of immediate early response genes, including Smad7. Interestingly, in the absence of ligand, Smad7 was found to be predominantly localized in the nucleus, whereas Smad7 accumulated in the cytoplasm upon TGF- receptor activation. The latter is in accordance with the physical association of Smad7 with the ligand-activated TGF- receptor complex in the cell membrane. Whereas the ectopically expressed C-terminal domain of Smad7 was also exported from the nucleus to the cytoplasm upon TGF- challenge, a Smad7 mutant with a small deletion at the C terminus or only the N-terminal domain of Smad7 was localized mainly in the cytoplasm in the absence or presence of ligand. This suggests that an intact Mad homology 2 domain is important for nuclear localization of Smad7. The nuclear localization of Smad7 suggests a functional role distinct from its antagonistic effect in receptor-mediated Smad activation.