Inhibitory Smad, Smad7, is a potent inhibitor of TGF-beta (transforming growth factor-beta) superfamily signalling. By binding to activated type I receptors, it prevents the activation of R-Smads (receptor-regulated Smads). To identify new components of the Smad pathway, we performed yeast two-hybrid screening using Smad7 as bait, and identified NEDD4-2 (neural precursor cell expressed, developmentally down-regulated 4-2) as a direct binding partner of Smad7. NEDD4-2 is structurally similar to Smurfs (Smad ubiquitin regulatory factors) 1 and 2, which were identified previously as E3 ubiquitin ligases for R-Smads and TGF-beta superfamily receptors. NEDD4-2 functions like Smurfs 1 and 2 in that it associates with TGF-beta type I receptor via Smad7, and induces its ubiquitin-dependent degradation. Moreover, NEDD4-2 bound to TGF-beta-specific R-Smads, Smads 2 and 3, in a ligand-dependent manner, and induced degradation of Smad2, but not Smad3. However, in contrast with Smurf2, NEDD4-2 failed to induce ubiquitination of SnoN (Ski-related novel protein N), although NEDD4-2 bound to SnoN via Smad2 more strongly than Smurf2. We showed further that overexpressed NEDD4-2 prevents transcriptional activity induced by TGF-beta and BMP, whereas silencing of the NEDD4-2 gene by siRNA (small interfering RNA) resulted in enhancement of the responsiveness to TGF-beta superfamily cytokines. These data suggest that NEDD4-2 is a member of the Smurf-like C2-WW-HECT (WW is Trp-Trp and HECT is homologous to the E6-accessory protein) type E3 ubiquitin ligases, which negatively regulate TGF-beta superfamily signalling through similar, but not identical, mechanisms to those used by Smurfs.