SMADs are evolutionarily conserved transducers of the differentiation and growth arrest signals from the transforming growth factor/BMP (TGF/BMP) family of ligands. Upon receptor activation, the ligand-restricted SMADs(1-35) are phosphorylated in the C-terminal MH2 domain and recruit the common subunit SMAD4/DPC-4 gene to the nucleus to mediate target gene expression. Frequent inactivating mutations of SMAD4, or less common somatic mutations of SMAD2 seen in solid tumors, suggest that these genes have a suppressor function. However, there have been no identified mutations of SMAD5, although the gene localizes to the critical region of loss in chromosome 5q31.1 (chromosome 5, long arm, region 3, band 1, subband 1) in myelodysplasia (MDS) and acute myelogenous leukemia (AML). A ubiquitously expressed novel isoform, SMAD5beta, encodes a 351 amino acid protein with a truncated MH2 domain and a unique C-terminal tail of 18 amino acids, which may be the functional equivalent of inactivating mutations. The levels of SMAD5beta transcripts are higher in the undifferentiated CD34(+) hematopoietic stem cells than in the terminally differentiated peripheral blood leukocytes, thereby implicating the beta form in stem cell homeostasis. Yeast 2-hybrid interaction assays reveal the lack of physical interactions between SMAD5beta and SMAD5 or SMAD4. The expression of SMAD5beta may represent a novel mechanism to protect pluripotent stem cells and malignant cells from the growth inhibitory and differentiation signals of BMPs. (Blood. 2000;95:3945-3950)