Smads, the intracellular effectors of transforming growth factor-beta (TGF-beta) family members, are somatically mutated at high frequency in particular types of human cancers. Certain of these mutations affect the Smad amino-terminal domain, which, in the case of Smad3 and Smad4, binds DNA. We investigated the functional consequences of four missense mutations in the Smad4 amino-terminal domain found in human tumors. The mutant proteins were found to have impaired abilities to bind DNA although they were fully capable of forming complexes with Smad3. All four Smad4 mutants showed decreased protein stability compared to wild-type Smad4. Two of the Smad4 mutants (G65V and P130S) were translocated to the nucleus and were capable of transactivating a Smad-dependent promoter in a ligand-dependent manner. In contrast, the L43S and R100T mutants were not translocated efficiently to the nucleus and consequently resulted in severely defective transcriptional responses to TGF-beta. Moreover, we demonstrate here the critical importance of two basic residues in the beta-hairpin loop of Smad3 or Smad4 for DNA binding, consistent with predictions from the Smad3 crystal structure. In addition, our results reveal that in the TGF-beta-induced heteromeric signaling complex, loss of DNA binding of Smad4 can be compensated by Smad3, however, both Smad3 and Smad4 are needed for efficient DNA binding and signaling. In conclusion, mutations in the amino-terminal domain of Smad4, that are found in cancer, show loss of multiple functional properties which may contribute to tumorigenesis.