TGFbeta/activin/Nodal receptors activate both Smad2 and Smad3 intracellular effector proteins. The functional activities of these closely related molecules have been extensively studied in cell lines. We show both are expressed in the early mouse embryo from the blastocyst stage onwards and mediate Foxh1-dependent activation of the Nodal autoregulatory enhancer in vitro. Genetic manipulation of their expression ratios reveals that Smad3 contributes essential signals at early post-implantation stages. Thus, loss of Smad3 in the context of one wild-type copy of Smad2 results in impaired production of anterior axial mesendoderm, while selective removal of both Smad2 and Smad3 from the epiblast additionally disrupts specification of axial and paraxial mesodermal derivatives. Finally, we demonstrate that Smad2;Smad3 double homozygous mutants entirely lack mesoderm and fail to gastrulate. Collectively, these results demonstrate that dose-dependent Smad2 and Smad3 signals cooperatively mediate cell fate decisions in the early mouse embryo.