Smad2 and Smad3 are downstream transforming growth factor-beta (TGF-beta) signaling molecules. Upon phosphorylation by its type I receptor, Smad2 or Smad3 forms a complex with Smad4 and translocates to the nucleus where the complex activates target gene transcription. In the present study, we report that Smad3 binds directly to the osteopontin (OPN) promoter and that Smad4 interacts with the Hox protein and displaces it from its cognate DNA binding site in response to TGF-beta stimulation. In gel shift assays, the glutathione S-transferase-Smad3 fusion protein was found to bind to a 50-base pair DNA element (-179 to -229) from the OPN promoter. Also, we found that both Hoxc-8 and Hoxa-9 bound to a Hox binding site adjacent to Smad3 binding sequence. Interestingly, Smad4, the common partner for both bone morphogenic protein and TGF-beta signaling pathways, inhibited the binding of Hox protein to DNA. FLAG-tagged Smad4 coimmunoprecipitated with HA-tagged Hoxa-9 from cotransfected COS-1 cells, demonstrating an interaction between Smad4 and Hoxa-9. Transfection studies showed that Hoxa-9 is a strong transcriptional repressor; it suppresses the transcription of the luciferase reporter gene driven by a 124-base pair OPN promoter fragment containing both Smad3 and Hox binding sites. Taken together, these data demonstrate a unique TGF-beta-induced transcription mechanism. Smad3 and Smad4 exhibit different functions in activation of OPN transcription. Smad3 binds directly to the OPN promoter as a sequence-specific activator, and Smad4 displaces the transcription repressor, Hoxa-9, by formation of Smad4/Hox complex as part of the transcription mechanism in response to TGF-beta stimulation.