Transforming growth factors beta (TGF-betas) inhibit growth of epithelial cells 
and induce differentiation changes, such as epithelial-mesenchymal transition 
(EMT). On the other hand, bone morphogenetic proteins (BMPs) weakly affect 
epithelial cell growth and do not induce EMT. Smad4 transmits signals from both 
TGF-beta and BMP pathways. Stimulation of Smad4-deficient epithelial cells with 
TGF-beta 1 or BMP-7 in the absence or presence of exogenous Smad4, followed by 
cDNA microarray analysis, revealed 173 mostly Smad4-dependent, TGF-beta-, or 
BMP-responsive genes. Among 25 genes coregulated by both factors, inhibitors of 
differentiation Id2 and Id3 showed long-term repression by TGF-beta and 
sustained induction by BMP. The opposing regulation of Id genes is critical for 
proliferative and differentiation responses. Hence, ectopic Id2 or Id3 
expression renders epithelial cells refractory to growth inhibition and EMT 
induced by TGF-beta, phenocopying the BMP response. Knockdown of endogenous Id2 
or Id3 sensitizes epithelial cells to BMP, leading to robust growth inhibition 
and induction of transdifferentiation. Thus, Id genes sense Smad signals and 
create a permissive or refractory nuclear environment that defines decisions of 
cell fate and proliferation.