TGF-beta signaling is essential for development and proliferative homeostasis. During embryogenesis, maternal determinants act in concert with TGF-beta signals to form mesoderm and endoderm. In contrast, ectoderm specification requires the TGF-beta response to be attenuated, although the mechanisms by which this is achieved remain unknown. In a functional screen for ectoderm determinants, we have identified Ectodermin (Ecto). In Xenopus embryos, Ecto is essential for the specification of the ectoderm and acts by restricting the mesoderm-inducing activity of TGF-beta signals to the mesoderm and favoring neural induction. Ecto is a RING-type ubiquitin ligase for Smad4, a TGF-beta signal transducer. Depletion of Ecto in human cells enforces TGF-beta-induced cytostasis and, moreover, plays a causal role in limiting the antimitogenic effects of Smad4 in tumor cells. We propose that Ectodermin is a key switch in the control of TGF-beta gene responses during early embryonic development and cell proliferation.