Smad4 plays a pivotal role in signal transduction of the transforming growth factor β superfamily cytokines by mediating transcriptional activation of target genes. Hetero-oligomerization of Smad4 with the pathway-restricted SMAD proteins is essential for Smad4-mediated transcription. We provide evidence that SMAD hetero-oligomerization is directly required for the Smad4 C-terminal domain [Smad4(C)] to show its transcriptional transactivating activity; this requirement obtains even when Smad4(C) is recruited to promoters by heterologous DNA-binding domains and in the absence of the inhibitory Smad4 N-terminal domain. Defined mutations of GAL4 DNA-binding domain fusion of Smad4(C) that disrupt SMAD hetero-oligomerization suppressed transcriptional activation. Importantly, we found that an orphan transcriptional activator MSG1, a nuclear protein that has strong transactivating activity but apparently lacks DNA-binding activity, functionally interacted with Smad4 and enhanced transcription mediated by GAL4 DNA-binding domain-Smad4(C) and full-length Smad4. Transcriptional enhancement by MSG1 depended on transforming growth factor β signaling and was suppressed by Smad4(C) mutations disrupting SMAD hetero-oligomerization or by the presence of Smad4 N-terminal domain. Furthermore, Smad4(C) did not show any detectable transactivating activity in yeast when fused to heterologous DNA-binding domains. These results demonstrate additional roles of SMAD hetero-oligomerization in Smad4-mediated transcriptional activation. They also suggest that the transcriptional-activating activity observed in the presence of Smad4 in mammalian cells may be derived, at least in part, from endogenously expressed separate transcriptional activators, such as MSG1.