Members of the transforming growth factor beta (TGF-beta) superfamily are involved in diverse physiological activities including development, tissue repair, hormone regulation, bone formation, cell growth, and differentiation. At the cellular level, these functions are initiated by the interaction of ligands with specific transmembrane receptors with intrinsic serine/threonine kinase activity. The signaling pathway that links receptor activation to the transcriptional regulation of the target genes is largely unknown. Recent work in Drosophila and Xenopus signaling suggested that Mad (Mothers against dpp) functions downstream of the receptors of the TGF-beta family. Mammalian Mad1 has been reported to respond to bone morphogenetic protein (BMP), but not to TGF-beta or activin. We report here the cloning and functional studies of a novel mammalian Mad molecule, Mad3, as well as a rat Mad1 homologue. Overexpression of Mad3 in a variety of cells stimulated basal transcriptional activity of the TGF-beta/activin-responsive reporter construct, p3TP-Lux. Furthermore, expression of Mad3 could potentiate the TGF-beta- and activin-induced transcriptional stimulation of p3TP-Lux. By contrast, overexpression of Mad1 inhibited the basal as well as the TGF-beta/activin induced p3TP-Lux activity. These findings, therefore, support the hypothesis that Mad3 may serve as a mediator linking TGF-beta/activin receptors to transcriptional regulation.