Biochemical studies have shown that Smad7 blocks signal transduction of transforming growth factor beta (TGFbeta); however, its in vivo functions are largely unknown. To determine the functions of Smad7, we have expressed Smad7 in transgenic mice, utilizing a keratin K5 promoter (K5.Smad7). K5.Smad7 mice exhibited pathological changes in multiple tissues and died within 10 days after birth. These mice were born with open eyelids and corneal defects, significantly delayed and aberrant hair follicle morphogenesis, and hyperproliferation in the epidermis and other stratified epithelia. Furthermore, K5.Smad7 mice developed severe thymic atrophy and massive thymocyte death, suggesting that Smad signaling in thymic epithelia is essential for thymocyte survival. Interestingly, in addition to a reduction in Smad phosphorylation, the protein levels of the receptors for TGFbeta, activin and bone morphogenetic protein were significantly decreased in the affected tissues of K5.Smad7 mice. Our study provides evidence that Smad7 is a potent in vivo inhibitor for signal transduction of the TGFbeta superfamily during development and maintenance of homeostasis of multiple epithelial tissues.