BMP7 and activin are members of the transforming growth factor beta superfamily. Here we characterize endogenous activin and BMP7 signaling pathways in P19 embryonic carcinoma cells. We show that BMP7 and activin bind to the same type II receptors, ActRII and IIB, but recruit distinct type I receptors into heteromeric receptor complexes. The major BMP7 type I receptor observed was ALK2, while activin bound exclusively to ALK4 (ActRIB). BMP7 and activin elicited distinct biological responses and activated different Smad pathways. BMP7 stimulated phosphorylation of endogenous Smad1 and 5, formation of complexes with Smad4 and induced the promoter for the homeobox gene, Tlx2. In contrast, activin induced phosphorylation of Smad2, association with Smad4, and induction of the activin response element from the Xenopus Mix.2 gene. Biochemical analysis revealed that constitutively active ALK2 associated with and phosphorylated Smad1 on the COOH-terminal SSXS motif, and also regulated Smad5 and Smad8 phosphorylation. Activated ALK2 also induced the Tlx2 promoter in the absence of BMP7. Furthermore, we show that ALK1 (TSRI), an orphan receptor that is closely related to ALK2 also mediates Smad1 signaling. Thus, ALK1 and ALK2 induce Smad1-dependent pathways and ALK2 functions to mediate BMP7 but not activin signaling.