Smad proteins are key effectors of the transforming growth factor beta (TGFbeta) signaling pathway in mammalian cells. Smads are composed of two highly structured and conserved domains called Mad homology 1 (MH1) and 2 (MH2), which are linked together by a nonconserved linker region. The recent identification of phosphorylation sites and binding sites for ubiquitin ligases in the linker regions of TGFbeta and bone morphogenetic protein (BMP) receptor-regulated Smads suggested that the linker may contribute to the regulation of Smad function by facilitating cross-talks with other signaling pathways. In the present study, we have generated and characterized novel Smad3 mutants bearing individual substitutions of conserved and nonconserved amino acid residues within a previously described transcriptionally active linker fragment. Our analysis showed that the conserved linker amino acids glutamine 222 and proline 229 play important roles in Smad functions such as homo- and hetero-oligomerization, nuclear accumulation in response to TGFbeta stimulation, and DNA binding. Furthermore, a Smad3 mutant bearing a substitution of the nonconserved amino acid asparagine 218 to alanine displayed enhanced transactivation potential relative to wild type Smad3. Finally, Smad3 P229A inhibited TGFbeta signaling when overexpressed in mammalian cells. In conclusion, our data are in line with previous studies supporting an important regulatory role of the linker region of Smads in their function as key transducers of TGFbeta signaling.