Smad3 is an essential component in the intracellular signaling of transforming growth factor-beta (TGFbeta), which is a potent inhibitor of tumor cell proliferation. BRCA2 is a tumor suppressor involved in early onset of breast, ovarian and prostate cancer. Both Smad3 and BRCA2 possess transcription activation domains. Here, we show that Smad3 and BRCA2 interact functionally and physically. We found that BRCA2 forms a complex with Smad3 in vitro and in vivo, and that both MH1 and MH2 domains of Smad3 contribute to the interaction. TGFbeta1 stimulates interaction of endogenous Smad3 and BRCA2 in non-transfected cells. BRCA2 co-activates Smad3-dependent transcriptional activation of luciferase reporter and expression of plasminogen activator inhibitor-1 (PAI-1). Smad3 increases the transcriptional activity of BRCA2 fused to the DNA-binding domain (DBD) of Gal4, and reciprocally, BRCA2 co-activates DBD-Gal4-Smad3. Thus, our results show that BRCA2 and Smad3 form a complex and synergize in regulation of transcription.