The bone morphogenetic protein (BMP) family represents a class of signaling molecules, that plays key roles in morphogenesis, cell proliferation, survival and differentiation during normal development. Members of this family are essential for the development of the mammalian orofacial region where they regulate cell proliferation, extracellular matrix synthesis, and cellular differentiation. Perturbation of any of these processes results in orofacial clefting. Embryonic orofacial tissue expresses BMP mRNAs, their cognate proteins, and BMP-specific receptors in unique temporo-spatial patterns, suggesting functional roles in orofacial development. However, specific genes that function as downstream mediators of BMP action during orofacial ontogenesis have not been well defined. In the current study, elements of the Smad component of the BMP intracellular signaling system were identified and characterized in embryonic orofacial tissue and functional activation of the Smad pathway by BMP2 and BMP4 was demonstrated. BMP2 and BMP4-initiated Smad signaling in cells derived from embryonic orofacial tissue was found to result in: (1) phosphorylation of Smads 1 and 5; (2) nuclear translocation of Smads 1, 4, and 5; (3) binding of Smads 1, 4, and 5 to a consensus Smad binding element (SBE)-containing oligonucleotide; (4) transactivation of transfected reporter constructs, containing BMP-inducible Smad response elements; and (5) increased expression at transcriptional as well as translational levels of Id3 (endogenous gene containing BMP receptor-specific Smad response elements). Collectively, these data document the existence of a functional Smad-mediated BMP signaling system in cells of the developing murine orofacial region.