Arkadia was originally identified as a protein that enhances signalling activity of Nodal and induces mammalian nodes during early embryogenesis; however, the mechanisms by which Arkadia affects transforming growth factor-beta (TGF-beta) superfamily signalling have not been determined. Here we show that Arkadia is widely expressed in mammalian tissues, and that it enhances both TGF-beta and bone morphogenetic protein (BMP) signalling. Arkadia physically interacts with inhibitory Smad, Smad7, and induces its poly-ubiquitination and degradation. In contrast to Smurf1, which interacts with TGF-beta receptor complexes through Smad7 and degrades them, Arkadia fails to associate with TGF-beta receptors. In contrast to Smad7, expression of Arkadia is down-regulated by TGF-beta. Silencing of the Arkadia gene resulted in repression of transcriptional activities induced by TGF-beta and BMP, and accumulation of the Smad7 protein. Arkadia may thus play an important role as an amplifier of TGF-beta superfamily signalling under both physiological and pathological conditions.