Transforming growth factor-beta (TGF-beta) family members, including TGF-betas, activins, and bone morphogenetic proteins, exert diverse biological activities in cell proliferation, differentiation, apoptosis, embryonic development, and many other processes. These effects are largely mediated by Smad proteins. Smad7 is a negative regulator for the signaling of TGF-beta family members. Dysregulation of Smad7 is associated with pathogenesis of a variety of human diseases. However, the in vivo physiological roles of Smad7 have not been elucidated due to the lack of a mouse model with significant loss of Smad7 function. Here we report generation and initial characterization of Smad7 mutant mice with targeted deletion of the indispensable MH2 domain. The majority of Smad7 mutant mice died in utero due to multiple defects in cardiovascular development, including ventricular septal defect and non-compaction, as well as outflow tract malformation. The surviving adult Smad7 mutant mice had impaired cardiac functions and severe arrhythmia. Further analyses suggest that Smad2/3 phosphorylation was elevated in atrioventricular cushion in the heart of Smad7 mutant mice, accompanied by increased apoptosis in this region. Taken together, these observations pinpoint an important role of Smad7 in the development and function of the mouse heart in vivo.