The transforming growth factor-beta (TGF-beta) superfamily is used throughout animal development for regulating the growth and patterning of many tissue types. During the past few years, rapid progress has been made in deciphering how TGF-beta signals are transduced from outside the cell to the nucleus. This progress is based on biochemical studies in vertebrate systems and a combination of genetic studies in Drosophila and Caenorhabditis elegans. These studies have identified a novel family of signaling proteins, the Smad family. Smads can act positively and be phosphorylated by TGF-beta-like receptors or can act negatively and prevent activation of the positively acting group. The positively acting Smads translocate to the nucleus, bind DNA, and act as transcriptional activators. Thus, genetic and biochemical studies suggest a very simple signaling pathway, in which Smads are the primary downstream participant.