Upon ligand binding, the receptors of the TGFβ family phosphorylate Smad proteins, which then move into the nucleus where they activate transcription. To carry out this function, the receptor-activated Smads 1 and 2 require association with the product of deleted in pancreatic carcinoma, locus 4 (DPC4), Smad4. We investigated the step at which Smad4 is required for transcriptional activation. Smad4 is not required for nuclear translocation of Smads 1 or 2, or for association of Smad2 with a DNA binding partner, the winged helix protein FAST-1. Receptor-activated Smad2 takes Smad4 into the nucleus where they form a complex with FAST-1 that requires these three components to activate transcription. Smad4 contributes two functions: Through its amino-terminal domain, Smad4 promotes binding of the Smad2/Smad4/FAST-1 complex to DNA; through its carboxy-terminal domain, Smad4 provides an activation function required for Smad1 or Smad2 to stimulate transcription. The dual function of Smad4 in transcriptional activation underscores its central role in TGFβ signaling.