Transforming growth factor-β (TGF-β) is a multifunctional cytokine of key importance for controlling embryogenesis and tissue homeostasis. How TGF-β signals are attenuated and terminated is not well understood. Here, we show that TMEPAI, a direct target gene of TGF-β signaling, antagonizes TGF-β signaling by interfering with TGF-β type I receptor (TβRI)-induced R-Smad phosphorylation. TMEPAI can directly interact with R-Smads via a Smad interaction motif. TMEPAI competes with Smad anchor for receptor activation for R-Smad binding, thereby sequestering R-Smads from TβRI kinase activation. In mammalian cells, ectopic expression of TMEPAI inhibited TGF-β-dependent regulation of plasminogen activator inhibitor-1, JunB, cyclin-dependent kinase inhibitors, and c-myc expression, whereas specific knockdown of TMEPAI expression prolonged duration of TGF-β-induced Smad2 and Smad3 phosphorylation and concomitantly potentiated cellular responsiveness to TGF-β. Consistently, TMEPAI inhibits activin-mediated mesoderm formation in Xenopus embryos. Therefore, TMEPAI participates in a negative feedback loop to control the duration and intensity of TGF-β/Smad signaling.