Transforming growth factor-beta (TGFbeta) is a potent regulator of cell proliferation, differentiation, motility, and apoptosis. TGFbeta binds to and activates serine/threonine kinase receptors that phosphorylate Smad2 and Smad3 intracellular signal transducers at two C-terminal serine residues. Here we show that substitutions of Arg-462 and Cys-463 residues, which are in proximity of the C-terminal serine residues, inhibited TGFbeta type I receptor-dependent phosphorylation of the C-terminal Smad2 peptides and full-length GST-Smad2 proteins in vitro. In vivo, mutation of Arg-462 and Cys-463 inhibited TGFbeta1-stimulated phosphorylation of the C-terminal serine residues in Smad2. Moreover, Smad2 with mutated Arg-462 and Cys-463 was less efficient in activation of the Smad2-responsive activin-responsive element-containing luciferase reporter ARE-luc, as compared with the wild-type protein. Thus, Arg-462 and Cys-463, which are in proximity of the C-terminal serine residues, contribute to recognition and phosphorylation of the C terminus of Smad2 by type I TGFbeta receptor.