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<p>Transforming growth factor-beta (TGF-&#946;)/bone morphogenic protein (BMP) signaling is involved in a vast majority of cellular processes and is fundamentally important throughout life. TGF-&#946;/BMPs have widely recognized roles in bone formation during mammalian development and exhibit versatile regulatory functions in the body. Signaling transduction by TGF-&#946;/BMPs is specifically through both canonical Smad-dependent pathways (TGF-&#946;/BMP ligands, receptors and Smads) and non-canonical Smad-independent signaling pathway (<i>e.g.</i> p38 mitogen-activated protein kinase pathway, MAPK). Following TGF-&#946;/BMP induction, both the Smad and p38 MAPK pathways converge at the Runx2 gene to control mesenchymal precursor cell differentiation. The coordinated activity of Runx2 and TGF-&#946;/BMP-activated Smads is critical for formation of the skeleton. Recent advances in molecular and genetic studies using gene targeting in mice enable a better understanding of TGF-&#946;/BMP signaling in bone and in the signaling networks underlying osteoblast differentiation and bone formation. This review summarizes the recent advances in our understanding of TGF-&#946;/BMP signaling in bone from studies of genetic mouse models and human diseases caused by the disruption of TGF-&#946;/BMP signaling. This review also highlights the different modes of cross-talk between TGF-&#946;/BMP signaling and the signaling pathways of MAPK, Wnt, Hedgehog, Notch, and FGF in osteoblast differentiation and bone formation.</p>