The TGF-beta family comprises many structurally related differentiation factors that act through a heteromeric receptor complex at the cell surface and an intracellular signal transducing Smad complex. The receptor complex consists of two type II and two type I transmembrane serine/threonine kinases. Upon phosphorylation by the receptors, Smad complexes translocate into the nucleus, where they cooperate with sequence-specific transcription factors to regulate gene expression. The vertebrate genome encodes many ligands, fewer type II and type I receptors, and only a few Smads. In contrast to the perceived simplicity of the signal transduction mechanism with few Smads, the cellular responses to TGF-beta ligands are complex and context dependent. This raises the question of how the specificity of the ligand-induced signaling is achieved. We review the molecular basis for the specificity and versatility of signaling by the many ligands through this conceptually simple signal transduction mechanism.