Signaling of transforming growth factor beta (TGF-beta) is mediated through a heteromeric complex of two types of transmembrane receptors and downstream intracellular proteins known as Smads. Alterations of TGF-beta signaling underlie various forms of human cancer and developmental diseases. Human genetic studies have revealed both point mutations and deletions of Smad2 or Smad4 in several types of cancers. However, the role of Smad3 in tumorigenesis is not clear. Recent data indicate that Smad3 also functions as a tumor suppressor by inhibiting cell proliferation and promoting apoptosis. In addition, Smad3 is essential for TGF-beta-mediated immune suppression, and it plays an important role in regulating transcriptional responses that are favorable to metastasis. Therefore, through regulating different transcriptional responses, Smad3 functions as both a negative and positive regulator of carcinogenesis depending on cell type and clinical stage of the tumor.