Mothers against Dpp-related or Smad proteins are essential components of serine/threonine kinase receptor signaling pathways that are regulated by phosphorylation. Recently, it was demonstrated that Smad2 interacts transiently with and is a direct substrate of the transforming growth factor-beta (TGF-beta) type I receptor, TbetaRI. Phosphorylation sites on Smad2 were localized to a carboxyl-terminal fragment containing three serine residues at positions 464, 465, and 467. In this report, we show that TbetaRI specifically phosphorylates Smad2 on serines 465 and 467. Serine 464 is not a site of phosphorylation, but is important for efficient phosphorylation of Smad2. Phosphorylation at both sites is required to mediate association of Smad2 with Smad4 in mammalian cells, while in yeast, Smad2 interacts directly with Smad4 and does not require phosphorylation. Mutation of either serine residue 465 or 467 prevents dissociation of Smad2 from activated TbetaRI and blocks TGF-beta-dependent signaling and Smad2 transcriptional activity. These results indicate that receptor-dependent phosphorylation of Smad2 on serines 465 and 467 is required in mammalian cells to permit association with Smad4 and to propagate TGF-beta signals.