Bone morphogenetic proteins (BMP) transduce their signals into the cell through a family of mediator proteins known as Smads. Upon phosphorylation by the BMP receptors, Smad1 interacts with Smad4 and translocates into the nucleus where the complex recruits DNA-binding protein(s) to activate specific gene transcription. However, the DNA-binding protein(s) involved in BMP signaling has not been identified. Using a yeast two-hybrid approach, we found that Smad1 interacts with Hoxc-8, a homeodomain transcription factor. The interaction between Smad1 and Hoxc-8 was confirmed by a "pull-down" assay and a co-immunoprecipitation experiment in COS-1 cells. Interestingly, purified Smad1 inhibited Hoxc-8 binding to the osteopontin Hoxc-8 site in a concentration-dependent manner. Transient transfection studies showed that native osteopontin promoter activity was elevated upon BMP stimulation. Consistent with the gel shift assay, overexpression of Hoxc-8 abolished the BMP stimulation. When a wild type or mutant Hoxc-8 binding element was linked to an SV40 promoter-driven reporter gene, the wild type but not the mutant Hoxc-8 binding site responded to BMP stimulation. Again, overexpression of Hoxc-8 suppressed the BMP-induced activity of the wild type reporter construct. Our findings suggest that Smad1 interaction with Hoxc-8 dislodges Hoxc-8 from its DNA binding element, resulting in the induction of gene expression.