TGFbeta signaling controls diverse normal developmental processes and pathogenesis of diseases including cancer and autoimmune and fibrotic diseases. TGFbeta responses are generally mediated through transcriptional functions of Smads. A key step in TGFbeta signaling is ligand-induced phosphorylation of receptor-activated Smads (R-Smads) catalyzed by the TGFbeta type I receptor kinase. However, the potential of Smad dephosphorylation as a regulatory mechanism of TGFbeta signaling and the identity of Smad-specific phosphatases remain elusive. Using a functional genomic approach, we have identified PPM1A/PP2Calpha as a bona fide Smad phosphatase. PPM1A dephosphorylates and promotes nuclear export of TGFbeta-activated Smad2/3. Ectopic expression of PPM1A abolishes TGFbeta-induced antiproliferative and transcriptional responses, whereas depletion of PPM1A enhances TGFbeta signaling in mammalian cells. Smad-antagonizing activity of PPM1A is also observed during Nodal-dependent early embryogenesis in zebrafish. This work demonstrates that PPM1A/PP2Calpha, through dephosphorylation of Smad2/3, plays a critical role in terminating TGFbeta signaling.