Bone morphogenetic protein (BMP) receptors signal by phosphorylating Smad1, which then associates with Smad4; this complex moves into the nucleus and activates transcription. Here we report the existence of a natural inhibitor of this process, Smad6, a longer version of the previously reported JV15-1. In Xenopus embryos and in mammalian cells, Smad6 specifically blocks signaling by the BMP/Smad1 pathway. Smad6 inhibits BMP/Smad1 signaling without interfering with receptor-mediated phosphorylation of Smad1. Smad6 specifically competes with Smad4 for binding to receptor-activated Smad1, yielding an apparently inactive Smad1–Smad6 complex. Therefore, Smad6 selectively antagonizes BMP-activated Smad1 by acting as a Smad4 decoy.