Decapentaplegic (Dpp) is a member of the transforming growth factor-beta superfamily. Dpp governs various developmental processes in Drosophila through the transcriptional regulation of a variety of genes. Signals of Dpp are transmitted from the cell membrane to the nucleus by Medea and Mad, both belonging to the Smad protein family. Mad was shown to bind to the Dpp-responsive element in genes such as vestigial, labial, and Ultrabithorax. The DNA binding affinity of Smad proteins is relatively low, and requires other nuclear factor(s) to form stable DNA binding complexes. schnurri (shn) was identified as a candidate gene acting downstream of Dpp receptors, but its relevance to Mad has remained unknown. We characterized the biochemical functions of Shn. Shn forms homo-oligomers. Shn is localized in the nucleus, and is likely to have multiple nuclear localizing signals. Finally, we found that Shn interacts with Mad in a Dpp-dependent manner. The present results argue that Shn may act as a nuclear component of the Dpp signalling pathway through direct interaction with Mad.