Transforming growth factor beta (TGF-beta) signalling leads to phosphorylation and activation of receptor-regulated Smad2 and Smad3, which form complexes with Smad4 and accumulate in the nucleus. The Smads, however, do not seem to reside statically in the cytoplasm in the absence of signalling or in the nucleus upon TGF-beta stimulation, but have been suggested to shuttle continuously between these cellular compartments in both the absence and presence of TGF-beta. Here we investigate this nucleocytoplasmic shuttling in detail in living cells using fusions of Smad2 and Smad4 with enhanced GFP. We first establish that the GFPSmad fusions behave like wild-type Smads in a variety of cellular assays. We go on to demonstrate directly, using photobleaching experiments, that Smad2 and Smad4 shuttle between the cytoplasm and nucleus in both TGF-beta-induced cells and in uninduced cells. In uninduced cells, GFPSmad2 is less mobile in the cytoplasm than is GFPSmad4, suggesting that it may be tethered there. In addition, we show that both GFPSmad2 and GFPSmad4 undergo a substantial decrease in mobility in the nucleus upon TGF-beta stimulation, suggesting that active complexes of Smads are tethered in the nucleus, whereas unactivated Smads are more freely diffusible. We propose that regulated cytoplasmic and nuclear retention may play a role in determining the distribution of Smads between the cytoplasm and the nucleus in both uninduced cells and upon TGF-beta induction.