Growth factors of the TGF-beta superfamily such as BMPs and Nodals are important signaling factors during all stages of animal development. Smad proteins, the cytoplasmic mediators of most TGF-beta signals in vertebrates, play central roles not only for transmission but also in controlling inductive TGF-beta signals by feedback regulation. Here, we describe cloning, expression pattern, transcriptional regulation, and functional properties of two novel zebrafish Smad proteins: the TGF-beta agonist Smad3b, and the anti-Smad Smad7. We show that zebrafish Smad3b, in contrast to the related zebrafish Smad2, can induce mesoderm independently of TGF-beta signaling. Although mammalian Smad3 was shown to inhibit expression of the organizer-specific genes goosecoid, zebrafish smad3b activates organizer genes such as goosecoid. Furthermore, we show that Smad3 and BMP signals activate smad7. Because Smad7 blocks distinct TGF-beta signals in early zebrafish development, our data provide hints for new roles of smad3 genes in the regulation and modulation of TGF-beta signals. In summary, our analyses point out differences of Smad3b and Smad2 functions in zebrafish and provide the first link of smad3 and smad7 function in context of vertebrate development.