Smad4 functions as a transcription factor in TGF-b signalling. We have investigated the role of Smad4 in the TGF-b 1 cell responses of transformed PDV keratinocytes, which contain a Ras oncogene, and of nontumorigenic MCA3D keratinocytes, by transfecting both cell lines with a dominant-negative Smad4 construct. Smad4 mediates TGF-b 1 -induced up-regulation of p21 Cip1 and growth arrest in MCA3D cells. However, in PDV keratinocytes, Smad4 is only partially involved in TGFb 1 -induced growth inhibition, and does not mediate enhancement of p21 Cip1 levels by the growth factor. TGF-b 1 activates Ras/Erk signalling activity in both cell lines. PD098059, a speciŸc inhibitor of MEK, disminishes TGF-b 1 -induced p21 Cip1 levels in PDV but not in MCA3D cells, suggesting an involvement of Erk in upregulation of p21 Cip1 by TGF-b 1 in PDV cells. PDV dominant-negative Smad4 cell transfectants, but not MCA3D transfectants, showed constitutive hyperactivation of the Ras/Erk signalling pathway, increased secretion of urokinase, higher motility properties, and a change to a Ÿbroblastoid cell morphology associated in vivo with the transition from a well di erentiated to a poorly di erentiated tumour phenotype. Infection of MCA3D control and dominant negative Smad4 cell transfectants with retroviruses carrying a Ras oncogene led to enhanced p21 Cip1 and urokinase secreted levels, independently of TGF-b 1 stimulation, that were reduced by PD098059. These results suggest that Smad4 acts inhibiting Ras-dependent Erk signalling activity in Rastransformed keratinocytes. Loss of Smad4 function in these cells results in hyperactivation of Erk signalling and progression to undi erentiated carcinomas. Oncogene (2000) 19, 4134 ± 4145.