Binding of TGFβ/BMP factors to their receptors leads to translocation of Smad proteins to the nucleus where they activate transcription of target genes. The two-handed zinc finger proteins encoded by Zfhx1a and Zfhx1b, ZEB-1/δEF1 and ZEB-2/SIP1, respectively, regulate gene expression and differentiation programs in a number of tissues. Here I demonstrate that ZEB proteins are also crucial regulators of TGFβ/BMP signaling with opposing effects on this pathway. Both ZEB proteins bind to Smads, but while ZEB-1/δEF1 synergizes with Smad proteins to activate transcription, promote osteoblastic differentiation and induce cell growth arrest, the highly related ZEB-2/SIP1 protein has the opposite effect. Finally, the ability of TGFβ to mediate transcription of TGFβ-dependent genes and induce growth arrest depends on the presence of endogenous ZEB-1/δEF1 protein.