Anaplastic thyroid cancer (ATC) is the most aggressive human thyroid malignancy, characterized by dedifferentiation and resistance to radioiodine therapy. The underlying mechanisms regulating ATC dedifferentiation are largely unknown. Here, we show that REGγ, a noncanonical proteasome activator highly expressed in ATC, is an important regulator of differentiation in ATC cells. Ablation of REGγ significantly restored expression of thyroid-specific genes, enhanced iodine uptake, and improved the efficacy of 131I therapy in ATC xenograft models. Mechanistically, REGγ directly binds to the TGF-β signaling antagonist Smad7 and promotes its degradation, leading to the activation of the TGF-β signal pathway. With gain- and loss-of-function studies, we demonstrate that Smad7 is an important mediator for the REGγ function in ATC cell dedifferentiation, which is supported by expression profiles in human ATC tissues. It seems that REGγ impinges on repression of thyroid-specific genes and promotion of tumor malignancy in ATC cells by activating the TGF-β signal pathway via degradation of Smad7. Thus, REGγ may serve as a novel therapeutic target for allowing radioiodine therapy in anaplastic thyroid cancer patients with poor prognosis.