Bone morphogenetic proteins (BMPs) are secreted polypeptides belonging to the transforming growth factor-beta (TGF-beta) superfamily that activates a broad range of biological responses in the metazoan organism. The BMP-initiated signaling pathway is under tight control by processes including regulation of the ligands, the receptors, and the key downstream intracellular effector Smads. A critical point of control in BMP signaling is the phosphorylation of Smad1, Smad5, and Smad8 in their C-terminal SXS motif. Although such phosphorylation, which is mediated by the type I BMP receptor kinases in response to BMP stimulation, is well characterized, biochemical mechanisms underlying Smad dephosphorylation remain to be elucidated. In this study, we have found that PPM1A, a metal ion-dependent protein serine/threonine phosphatase, physically interacts with and dephosphorylates Smad1 both in vitro and in vivo. Functionally, overexpression of PPM1A abolishes BMP-induced transcriptional responses, whereas RNA interference-mediated knockdown of PPM1A enhances BMP signaling. Collectively, our study suggests that PPM1A plays an important role in controlling BMP signaling through catalyzing Smad dephosphorylation.