Alteration of the tumor microenvironment by aberrant stromal cells influences many aspects of cell biology, including differentiation of stem cells and tumor metastasis. The role of transforming growth factor (TGF)-beta signaling in stromal cells of the tissue microenvironment is critical to both pathways. We examined murine marrow stromal cells with deletion of Smad3 and found that they have an altered cell cycle profile, with a higher fraction of cells in G2/M phase. Deletion of Smad3 significantly abrogates TGF-beta signaling and suppresses phosphorylation of CDC27-anaphase-promoting complex (APC) during mitosis, thereby resulting in elevated cyclin-dependent kinase (CDK)1 activity via increased levels of cyclin B. Enhanced CDK1 activity due to deregulation of APC leads in turn to hyperphosphorylation of separase, impeding chromatid separation. A residue Ser1126Ala mutation in separase specifically abolished separase hyperphosphorylation in Smad3-deficient cells. The present results unveil a new function for the TGF-beta pathway in the regulation of APC to mediate chromatid separation during mitosis.