Smad proteins are intracellular molecules that mediate the canonical signaling cascade of TGFbeta superfamily growth factors. The TGFbeta superfamily comprises two groups of growth factors, BMPs and TGFbetas. Both groups can be further divided into several sub-groups based on sequence homologies and functional similarities. Ligands of the TGFbeta superfamily bind to cell surface receptors to activate Smad proteins in the cytoplasm; then the activated Smad proteins translocate into the nucleus to activate or repress specific target gene transcription. Both groups of growth factors play important roles in skeletal development and regeneration. However, whether these effects reflect signaling through canonical Smad pathways, or other non-canonical signaling pathways in vivo remains a mystery. Moreover, the mechanisms utilized by Smad proteins to initiate nuclear events and their interactions with cytoplasmic proteins are still under intensive investigation. This review will discuss the most recent progress understanding Smad signaling in the context of skeletal development and regeneration.