Abstract The transforming growth factor-β (TGF-β) signals are mediated by a family of at least nine SMAD proteins, of which SMAD5 is thought to relay signals of the bone morphogenetic protein (BMP) pathway. To investigate the role of SMAD5 during vertebrate development and tumorigenesis, we disrupted the Smad5 gene by homologous recombination. We showed that Smad5 was expressed predominantly in mesenchyme and somites during embryogenesis, and in many tissues of the adult. Mice homozygous for the mutation died between days 10.5 and 11.5 of gestation due to defects in angiogenesis. The mutant yolk sacs lacked normal vasculature and had irregularly distributed blood cells, although they contained hematopoietic precursors capable of erythroid differentiation. Smad5 mutant embryos had enlarged blood vessels surrounded by decreased numbers of vascular smooth muscle cells, suffered massive apoptosis of mesenchymal cells, and were unable to direct angiogenesis in vitro. These data suggest that SMAD5 may regulate endothelium-mesenchyme interactions during angiogenesis and that it is essential for mesenchymal survival.