Researchers identified the transcription factors downstream from the TGF-β receptors in studies of Drosophila and C. elegans mutants. These transcription factors in Drosophila and the related vertebrate proteins are now called Smads. Three types of Smad proteins function in the TGF-β signaling pathway: R-Smads (receptor-regulated Smads; Smads 2 and 3), co-Smads (Smad4), and I-Smads (inhibitory Smads; Smad7).

As illustrated in Figure 16-3, an R-Smad (Smad2 or Smad3) contains two domains, termed MH1 and MH2, separated by a flexible linker region. The N-terminal MH1 domain contains a DNA-binding segment as well as a domain called the nuclear-localization signal (NLS). NLSs are present in virtually all transcription factors found in the cytosol and are required for their transport into the nucleus (see Chapter 13). However, when R-Smads are in their inactive, nonphosphorylated state, the NLS is masked so that it cannot bind to an importin (see Figure 13-36), and the MH1 and MH2 domains associate in such a way that they cannot bind to DNA or to a co-Smad. Phosphorylation of two serine residues near the C-terminus of an R-Smad by activated TGF-β RI receptors separates the two domains, exposing the NLS and permitting binding of an importin, which catalyzes entrance of the Smad into the nucleus.

Simultaneously, the two serines in each Smad3 that were phosphorylated by the RI receptor kinase bind to phosphoserine-binding sites in the MH2 domains of a Smad3 or a Smad4, forming a stable complex containing two molecules of phosphorylated Smad3 (or Smad2) and one molecule of the co-Smad (Smad4). The bound importin then mediates translocation of the heteromeric R-Smad/co-Smad complex into the nucleus. After importin dissociates inside the nucleus, the Smad3/Smad4 (or Smad2/Smad4) complex binds to other transcription factors to activate transcription of specific target genes.

Within the nucleus, R-Smads are further modified by phosphorylation of their linker domains, acetylation of their MH1 domains, monoubiquitinylation of their MH2 domains, and dephosphorylation of the C-terminal serines by nuclear phosphatases. Collectively, these many modifications result in regulation of transcriptional activity and ultimately in dissociation of the R-Smad/co-Smad complex and export of the Smads from the nucleus via exportins. Thus the concentration of active Smads within the nucleus closely reflects the levels of activated TGF-β receptors on the cell surface, allowing transcriptional regulation to closely follow the level of active TGF-β in the environment.

BMP proteins, which also belong to the TGF-β family, bind to and activate a different set of receptors that are similar to the TGF-β RI and RII proteins, but phosphorylate other R-Smads. Two of these phosphorylated Smads then form a trimeric complex with Smad4, and this Smad complex activates different transcriptional responses than those induced by the TGF-β receptor.