Transforming growth factor‐beta (TGF‐β) is an important growth inhibitor of epithelial cells, and insensitivity to this cytokine results in uncontrolled cell proliferation and can contribute to tumorigenesis. Smad2 and Smad3 are direct mediators of TGF‐β signaling, however little is known about the selective activation of Smad2 versus Smad3. The Smad2 and Smad3 knockout mouse phenotypes and studies comparing Smad2 and Smad3 activation of TGF‐β target genes, suggest that Smad2 and Smad3 have distinct roles in TGF‐β signaling. The observation that TGF‐β inhibits proliferation of Smad3‐null mammary gland epithelial cells, whereas Smad3 deficient fibroblasts are only partially growth inhibited, suggests that Smad3 has a different role in epithelial cells and fibroblasts. Herein, the current understanding of Smad2 and Smad3‐mediated TGF‐β signaling and their relative roles are discussed, in addition to potential mechanisms for the selective activation of Smad2 versus Smad3. Since alterations in the TGF‐β signaling pathway play an important role in promoting tumorigenesis and cancer progression, methods for therapeutic targeting of the TGF‐β signaling pathway are being pursued. Determining how Smad2 or Smad3 differentially regulate the TGF‐β response may translate into developing more effective strategies for cancer therapy. J. Cell. Biochem. 101: 9–33, 2007. © 2007 Wiley‐Liss, Inc.