Smad proteins transduce transforming growth factor beta (TGF-beta) and bone morphogenetic protein (BMP) signals that regulate cell growth and differentiation. We have identified YY1, a transcription factor that positively or negatively regulates transcription of many genes, as a novel Smad-interacting protein. YY1 represses the induction of immediate-early genes to TGF-beta and BMP, such as the plasminogen activator inhibitor 1 gene (PAI-1) and the inhibitor of differentiation/inhibitor of DNA binding 1 gene (Id-1). YY1 inhibits binding of Smads to their cognate DNA elements in vitro and blocks Smad recruitment to the Smad-binding element-rich region of the PAI-1 promoter in vivo. YY1 interacts with the conserved N-terminal Mad homology 1 domain of Smad4 and to a lesser extent with Smad1, Smad2, and Smad3. The YY1 zinc finger domain mediates the association with Smads and is necessary for the repressive effect of YY1 on Smad transcriptional activity. Moreover, downregulation of endogenous YY1 by antisense and small interfering RNA strategies results in enhanced transcriptional responses to TGF-beta or BMP. Ectopic expression of YY1 inhibits, while knockdown of endogenous YY1 enhances, TGF-beta- and BMP-induced cell differentiation. In contrast, overexpression or knockdown of YY1 does not affect growth inhibition induced by TGF-beta or BMP. Accordingly, YY1 does not interfere with the regulation of immediate-early genes involved in the TGF-beta growth-inhibitory response, the cell cycle inhibitors p15 and p21, and the proto-oncogene c-myc. In conclusion, YY1 represses Smad transcriptional activities in a gene-specific manner and thus regulates cell differentiation induced by TGF-beta superfamily pathways.