Although transforming growth factor beta (TGF-beta) superfamily ligands play critical roles in diverse developmental processes, how cells transduce signals from these ligands is still poorly understood. Cell surface receptors for these ligands have been identified, but their cytoplasmic targets are unknown. We have identified three Caenorhabditis elegans genes, sma-2, sma-3, and sma-4, that have mutant phenotypes similar to those of the TGF-beta-like receptor gene daf-4, indicating that they are required for daf-4-mediated developmental processes. We show that sma-2 functions in the same cells as daf-4, consistent with a role in transducing signals from the receptor. These three genes define a protein family, the dwarfins, that includes the Mad gene product, which participates in the decapentaplegic TGF-beta-like pathway in Drosophila [Sekelsky, J. J., Newfeld, S. J., Raftery, L. A., Chartoff, E. H. & Gelbart, W. M. (1995) Genetics 139, 1347-1358]. The identification of homologous components of these pathways in distantly related organisms suggests that dwarfins may be universally required for TGF-beta-like signal transduction. In fact, we have isolated highly conserved dwarfins from vertebrates, indicating that these components are not idiosyncratic to invertebrates. These analyses suggest that dwarfins are conserved cytoplasmic signal transducers.