GADD45beta regulates cell growth, differentiation, and cell death following cellular exposure to diverse stimuli, including DNA damage and transforming growth factor-beta (TGFbeta). We examined how cells transduce the TGFbeta signal from the cell surface to the gadd45beta genomic locus and describe how GADD45beta contributes to TGFbeta biology. Following an alignment of gadd45beta genomic sequences from multiple organisms, we discovered a novel TGFbeta-responsive enhancer encompassing the third intron of the gadd45beta gene. Using three different experimental approaches, we found that SMAD3 and SMAD4, but not SMAD2, mediate transcription from this enhancer. Three lines of evidence support our conclusions. First, overexpression of SMAD3 and SMAD4 activated the transcriptional activity from this enhancer. Second, silencing of SMAD protein levels using short interfering RNAs revealed that TGFbeta-induced activation of the endogenous gadd45beta gene required SMAD3 and SMAD4 but not SMAD2. In contrast, we found that the regulation of plasminogen activator inhibitor type I depended upon all three SMAD proteins. Last, SMAD3 and SMAD4 reconstitution in SMAD-deficient cancer cells restored TGFbeta induction of gadd45beta. Finally, we assessed the function of GADD45beta within the TGFbeta response and found that GADD45beta-deficient cells arrested in G2 following TGFbeta treatment. These data support a role for SMAD3 and SMAD4 in activating gadd45beta through its third intron to facilitate G2 progression following TGFbeta treatment.