Transforming growth factor beta (TGF-beta) signals predominantly through a receptor complex comprising ALK5 and TbetaRII to activate receptor-regulated Smads (R-Smads) Smad2 and Smad3. In endothelial cells, however, TGF-beta can additionally activate Smad1 and Smad5. Here, we report that TGF-beta also strongly induces phosphorylation of Smad1/5 in many different normal epithelial cells, epithelium-derived tumor cells, and fibroblasts. We demonstrate that TbetaRII and ALK5, as well as ALK2 and/or ALK3, are required for TGF-beta-induced Smad1/5 phosphorylation. We show that the simultaneous activation of the R-Smads Smad2/3 and Smad1/5 by TGF-beta results in the formation of mixed R-Smad complexes, containing, for example, phosphorylated Smad1 and Smad2. The prevalence of these mixed R-Smad complexes explains why TGF-beta-induced Smad1/5 phosphorylation does not result in transcriptional activation via bone morphogenetic protein (BMP)-responsive elements, which bind activated Smad1/5-Smad4 complexes that are induced by BMP stimulation. Thus, TGF-beta induces two parallel pathways: one signaling via Smad2-Smad4 or Smad3-Smad4 complexes and the other signaling via mixed R-Smad complexes. Finally, we assess the function of the novel arm of TGF-beta signaling and show that TGF-beta-induced Smad1/5 activation is not required for the growth-inhibitory effects of TGF-beta but is specifically required for TGF-beta-induced anchorage-independent growth.