The bone morphogenetic protein (BMP)-induced Smad signal transduction pathway is an important positive regulator of osteoblast differentiation. BMP and other members of the transforming growth factor-beta (TGF-beta) family have distinct effects on osteoblast differentiation, depending on cell type and cell differentiation status. In C2C12 mesenchymal cells, BMP-induced osteoblast differentiation can be blocked by TGF-beta. In a search for key regulators of osteoblast differentiation we have used microarray analysis to identify genes which are differentially regulated by BMP2 and TGF-beta. Within the first 24 h following the onset of differentiation, 61 BMP2-regulated genes were identified of which the BMP2 effect was counteracted by TGF-beta. The majority of these differentially expressed transcripts are related to signal transduction. Notably, our data show that three Notch signal transduction pathway genes, Lfng, Hey1, and Hes1, are differentially regulated by BMP2 and TGF-beta. This suggests that these genes might function as the focal point for interaction of Smad and Notch signaling during osteoblast differentiation.