The Smad family of proteins, which are frequently targeted by tumorigenic mutations in cancer, mediate TGF-beta signaling from cell membrane to nucleus. The crystal structure of a Smad3 MH1 domain bound to an optimal DNA sequence determined at 2.8 A resolution reveals a novel DNA-binding motif. In the crystals, base-specific DNA recognition is provided exclusively by a conserved 11-residue beta hairpin that is embedded in the major groove of DNA. A surface loop region, to which tumorigenic mutations map, has been identified as a functional surface important for Smad activity. This structure establishes a framework for understanding how Smad proteins may act in concert with other transcription factors in the regulation of TGF-beta-responsive genes.