Bone morphogenetic protein-2 (BMP-2) inhibits terminal differentiation of C2C12 myoblasts and converts them into osteoblast lineage cells (Katagiri, T., Yamaguchi, A., Komaki, M., Abe, E., Takahashi, N., Ikeda, T., Rosen, V., Wozney, J. M., Fujisawa-Sehara, A., and Suda T. (1994)J. Cell Biol.127, 1755–1766). In the present study, we examined the possible involvement of Smad proteins, vertebrate homologues ofDrosophilaMothers against decapentaplegic, in the BMP effects on the differentiation of C2C12 myoblasts. C2C12 cells expressed Smad1, Smad2, Smad4, and Smad5 mRNAs, and expression levels were not altered by treatment with BMP-2 or TGF-β1. When Smads were transiently transfected into C2C12 cells, both Smad1 and Smad5 induced alkaline phosphatase (ALP) activity and decreased the activity of myogenin promoter/chloramphenicol acetyltransferase (myogenin-CAT) without BMP-2. When C-terminal-truncated Smad1 and Smad5 were transfected into constitutively active BMP receptor type IB (BMPR-IB)-expressing C2C12 cells, BMP signals were blocked, resulting in an increase in myogenin-CAT activity. On the other hand, Smad1 and Smad5 decreased myogenin-CAT activity but did not induce ALP activity in MyoD-transfected NIH3T3 fibroblasts. These results suggest that both Smad1 and Smad5 are involved in the intracellular BMP signals which inhibit myogenic differentiation and induce osteoblast differentiation in C2C12 cells, and that the conversion of the two differentiation pathways is regulated independently at a transcriptional level.