Smad3 is a well-characterized intracellular effector of the transforming growth factor beta (TGF-beta) signaling pathway and was implicated recently in the potentiation of vitamin D receptor (VDR)-mediated signaling. Given that both TGF-beta and vitamin D are important regulators of bone remodeling, it is expected that Smad3 plays an integral role in normal maintenance of bone. However, the exact mechanisms by which Smad3 functions in bone remodeling are unknown. Here, we show that mice with targeted deletion of Smad3 are osteopenic with less cortical and cancellous bone compared with wild-type littermates. Decreases in bone mineral density (BMD) in Smad3 null mice reflect the inability of osteoblasts to balance osteoclast activity, although osteoclast numbers are normal and vitamin D mediated serum calcium homeostasis is maintained. The osteopenia of Smad3 null mice is attributed to a decreased rate of bone formation associated with increased osteocyte number and apoptosis. These findings are supported by studies with isolated primary osteoblasts that show TGF-beta can no longer inhibit the differentiation of osteoblasts in the absence of Smad3; yet, TGF-beta-stimulated proliferation remains intact. Together these data support a model that a loss of Smad3 increases the osteocyte fate of the osteoblast and decreases the duration of osteoblast function by shortening lifespan, ultimately resulting in osteopenia.