Phosphorylation-dependent activation of the transcription factors Smad2 and Smad3 plays an important role in TGFbeta-dependent signal transduction. Following phosphorylation of Smad2 and Smad3, these molecules are translocated to the nucleus where they interact with coactivators and/or corepressors, including p300, CBP, and P/CAF, and regulate the expression of TGFbeta target genes. In the current study, we demonstrate that both Smad2 and Smad3 are acetylated by the coactivators p300 and CBP in a TGFbeta-dependent manner. Smad2 is also acetylated by P/CAF. The acetylation of Smad2 was significantly higher than that of Smad3. Lys(19) in the MH1 domain was identified as the major acetylated residue in both the long and short isoform of Smad2. Mutation of Lys(19) also reduced the p300-mediated acetylation of Smad3. By generating acetyl-Lys(19)-specific antibodies, we demonstrate that endogenous Smad2 is acetylated on this residue in response to TGFbeta signaling. Acetylation of the short isoform of Smad2 improves its DNA binding activity in vitro and enhances its association with target promoters in vivo, thereby augmenting its transcriptional activity. Acetylation of Lys(19) also enhanced the DNA binding activity of Smad3. Our data indicate that acetylation of Lys(19) induces a conformational change in the MH1 domain of the short isoform of Smad2, thereby making its DNA binding domain accessible for interactions with DNA. Thus, coactivator-mediated acetylation of receptor-activated Smad molecules could represent a novel way to regulate TGFbeta signaling.