The Smads are a family of sequence-specific DNA-binding proteins that modulate transcription in response to transforming growth factor beta (TGFbeta) by recruiting transcriptional activators like the histone acetyltransferase, p300/CBP, or repressors like the histone deacetylase, HDAC1, to TGFbeta target genes. The association of Smads and HDAC1 is mediated in part by direct binding of Smads to the HDAC1-associated proteins, TG-interacting factor, c-ski, and SnoN. Although ectopic expression of these proteins inhibits Smad-activated transcription, the contribution of histone deacetylase enzymatic activity to transcriptional repression by TGFbeta is unknown. Here, the biological requirements for the interaction between Smads and endogenous histone deacetylase activity are investigated. We identify residues in Mad homology domain 1 of Smad3 that are required for association with histone deacetylase activity. An amino acid change at one of these critical residues does not disrupt the association of Smad3 with c-ski, SnoN, and transforming growth-interacting factor but does abrogate the ability of Smad3 to repress transcription. These findings indicate that the association of Smad3 and histone deacetylase activity relies on additional protein mediators that make contact with Smad3 at its amino terminus. Moreover, these data suggest that the suppressive effect of Smad3 on transcription is dependent upon its association with histone deacetylase enzymatic activity.