E3 ubiquitin ligases play important roles in regulating transforming growth factor beta (TGF-beta)/Smad signaling. Screening of an E3 ubiquitin ligase small interfering RNA library, using TGF-beta induction of a Smad3/Smad4-dependent luciferase reporter as a readout, revealed that Arkadia is an E3 ubiquitin ligase that is absolutely required for this TGF-beta response. Knockdown of Arkadia or overexpression of a dominant-negative mutant completely abolishes transcription from Smad3/Smad4-dependent reporters, but not from Smad1/Smad4-dependent reporters or from reporters driven by Smad2/Smad4/FoxH1 complexes. We show that Arkadia specifically activates transcription via Smad3/Smad4 binding sites by inducing degradation of the transcriptional repressor SnoN. Arkadia is essential for TGF-beta-induced SnoN degradation, but it has little effect on SnoN levels in the absence of signal. Arkadia interacts with SnoN and induces its ubiquitination irrespective of TGF-beta/Activin signaling, but SnoN is efficiently degraded only when it forms a complex with both Arkadia and phosphorylated Smad2 or Smad3. Finally, we describe an esophageal cancer cell line (SEG-1) that we show has lost Arkadia expression and is deficient for SnoN degradation. Reintroduction of wild-type Arkadia restores TGF-beta-induced Smad3/Smad4-dependent transcription and SnoN degradation in these cells, raising the possibility that loss of Arkadia function may be relevant in cancer.