Cleft palate and skull malformations represent some of the most frequent congenital birth defects in the human population. Previous studies have shown that TGFbeta signaling regulates the fate of the medial edge epithelium during palatal fusion and postnatal cranial suture closure during skull development. It is not understood, however, what the functional significance of TGFbeta signaling is in regulating the fate of cranial neural crest (CNC) cells during craniofacial development. We show that mice with Tgfbr2 conditional gene ablation in the CNC have complete cleft secondary palate, calvaria agenesis, and other skull defects with complete phenotype penetrance. Significantly, disruption of the TGFbeta signaling does not adversely affect CNC migration. Cleft palate in Tgfbr2 mutant mice results from a cell proliferation defect within the CNC-derived palatal mesenchyme. The midline epithelium of the mutant palatal shelf remains functionally competent to mediate palatal fusion once the palatal shelves are placed in close contact in vitro. Our data suggests that TGFbeta IIR plays a crucial, cell-autonomous role in regulating the fate of CNC cells during palatogenesis. During skull development, disruption of TGFbeta signaling in the CNC severely impairs cell proliferation in the dura mater, consequently resulting in calvaria agenesis. We provide in vivo evidence that TGFbeta signaling within the CNC-derived dura mater provides essential inductive instruction for both the CNC- and mesoderm-derived calvarial bone development. This study demonstrates that TGFbeta IIR plays an essential role in the development of the CNC and provides a model for the study of abnormal CNC development.