Basal forebrain cholinergic neurons play critical roles in the organization of brain cortical structures and in processes such as learning and memory. We have previously shown that bone morphogenetic protein (BMP) 9, a member of the transforming growth factor (TGF) beta superfamily of cytokines, is a differentiating factor for cholinergic central nervous system neurons. However, whereas the basic signal transduction pathways for most known members of the TGF-beta superfamily have been well characterized in brain and other organs, nothing is known about the signal transduction pathway of BMP9 in the brain. Here, we describe the pattern of expression of BMP receptors, including Bmpr-Ia, Bmpr-Ib, Bmpr-II, Actr-I. Actr-Ib, Actr-II and Actr-IIb, Alk-1, and Smad proteins (Smads 1-5 and Smad8) in the septal region of the basal forebrain during mouse development. Using cultured basal forebrain cells derived from embryonic day (E) 14 mice, we show that BMP9 causes phosphorylation of Smad1 and Smad5, formation of a complex of Smad4 with Samd1 and/or Smad5, and translocation of these proteins into the nucleus. These data show that BMP9 activates the canonical BMP signaling pathway and suggest that this could be one of the mechanisms responsible for the induction of the cholinergic phenotype by BMP9 in the basal forebrain.