Bone morphogenetic proteins (BMPs) are members of the transforming growth factor-beta family of cytokines. The recent observation that BMPs can inhibit breast cancer cell proliferation in vitro suggests that BMPs or the BMP pathway may hold promise as therapeutic targets for the control of breast tumor growth in women. Better to understand the mechanism of BMP-induced growth arrest we examined the effect of BMP-2 and mediators of BMP-2 action on cell proliferation and p21(Cip1) expression in breast cancer cell lines. We show here that BMP-2 potently inhibited the proliferation of breast cancer cell lines that express both Smad1 and Smad4 (CAMA-1, MCF7, MDA-MB-231, T-47D, ZR-75-1), but not that of cells that only express Smad1 (MDA-MB-468). Growth inhibition correlated with up-regulation of p21 mRNA and protein levels. Up-regulation of p21 was resistant to cycloheximide but not to actinomycin D, suggesting that it occurred at the transcriptional level. Using p21 promoter-luciferase reporter constructs we mapped the BMP-responsive region of the p21 promoter to within 211 base pairs of the transcription start site. Induction of p21 promoter activity was rapid and coincided with up-regulation of p21 mRNA and protein levels. p21 promoter activity required both Smad1 and Smad4 and was induced by either BMP-2 or constitutively active type I BMP receptors. Moreover, the C-terminal SSVS region of Smad1 was necessary for activation of the p21 promoter by BMP-2. Taken together, these results indicate that the mechanism of BMP-induced p21 promoter activation involves BMP receptors and BMP Smads.