Smad proteins play a key role in the intracellular signaling of the transforming growth factor beta (TGF-beta) superfamily of extracellular polypeptides that initiate signaling from the cell surface through serine/threonine kinase receptors. A subclass of Smad proteins, including Smad6 and Smad7, has been shown to function as intracellular antagonists of TGF-beta family signaling. We have previously reported the identification of a WD40 repeat protein, STRAP, that associates with both type I and type II TGF-beta receptors and that is involved in TGF-beta signaling. Here we demonstrate that STRAP synergizes specifically with Smad7, but not with Smad6, in the inhibition of TGF-beta-induced transcriptional responses. STRAP does not show cooperation with a C-terminal deletion mutant of Smad7 that does not bind with the receptor and consequently has no inhibitory activity. STRAP associates stably with Smad7, but not with the Smad7 mutant. STRAP recruits Smad7 to the activated type I receptor and forms a complex. Moreover, STRAP stabilizes the association between Smad7 and the activated receptor, thus assisting Smad7 in preventing Smad2 and Smad3 access to the receptor. STRAP interacts with Smad2 and Smad3 but does not cooperate functionally with these Smads to transactivate TGF-beta-dependent transcription. The C terminus of STRAP is required for its phosphorylation in vivo, which is dependent on the TGF-beta receptor kinases. Thus, we describe a mechanism to explain how STRAP and Smad7 function synergistically to block TGF-beta-induced transcriptional activation.