TGFbeta can override the proliferative effects of EGF and other Ras-activating mitogens in normal epithelial cells. However, epithelial cells harboring oncogenic Ras mutations often show a loss of TGFbeta antimitogenic responses. Here we report that oncogenic Ras inhibits TGFbeta signaling in mammary and lung epithelial cells by negatively regulating the TGFbeta mediators Smad2 and Smad3. Oncogenically activated Ras inhibits the TGFbeta-induced nuclear accumulation of Smad2 and Smad3 and Smad-dependent transcription. Ras acting via Erk MAP kinases causes phosphorylation of Smad2 and Smad3 at specific sites in the region linking the DNA-binding domain and the transcriptional activation domain. These sites are separate from the TGFbeta receptor phosphorylation sites that activate Smad nuclear translocation. Mutation of these MAP kinase sites in Smad3 yields a Ras-resistant form that can rescue the growth inhibitory response to TGFbeta in Ras-transformed cells. EGF, which is weaker than oncogenic mutations at activating Ras, induces a less extensive phosphorylation and cytoplasmic retention of Smad2 and Smad3. Our results suggest a mechanism for the counterbalanced regulation of Smad2/Smad3 by TGFbeta and Ras signals in normal cells, and for the silencing of antimitogenic TGFbeta functions by hyperactive Ras in cancer cells.