Bone morphogenic proteins (BMPs) stimulate bone formation in vivo and osteoblast differentiation in vitro via a Smad signaling pathway. Recent findings revealed that the activation of nuclear factor-κB (NF-κB) inhibits BMP-induced osteoblast differentiation. Here, we show that NF-κB inhibits BMP signaling by directly targeting the Smad pathway. A selective inhibitor of the classic NF-κB pathway, BAY11-770682, enhanced BMP2-induced ectopic bone formation in vivo. In mouse embryonic fibroblasts (MEFs) prepared from mice deficient in p65, the main subunit of NF-κB, BMP2, induced osteoblastic differentiation via the Smad complex to a greater extent than that in wild-type MEFs. In p65(-/-) MEFs, the BMP2-activated Smad complex bound much more stably to the target element than that in wild-type MEFs without affecting the phosphorylation levels of Smad1/5/8. Overexpression of p65 inhibited BMP2 activity by decreasing the DNA binding of the Smad complex. The C-terminal region, including the TA2 domain, of p65 was essential for inhibiting the BMP-Smad pathway. The C-terminal TA2 domain of p65 associated with the MH1 domain of Smad4 but not Smad1. Taken together, our results suggest that p65 inhibits BMP signaling by blocking the DNA binding of the Smad complex via an interaction with Smad4. Our study also suggests that targeting the association between p65 and Smad4 may help to promote bone regeneration in the treatment of bone diseases.