BMP2 signaling and RUNX2 regulatory pathways converge for transcriptional control of bone formation in vivo. SMAD proteins are recruited to RUNX2 regulatory complexes via an overlapping nuclear matrix targeting signal/Smad interacting domain sequence (391-432) in Runx2. To establish the contribution of RUNX2-SMAD interaction to osteoblastogenesis, we characterized a number of point mutants. Only a triple mutation of amino acids 426-428 (HTY-AAA) results in loss of RUNX2 interactions with either BMP2- or TGF-beta- responsive SMADs and fails to integrate the BMP2/TGF-beta signal on target gene promoters. In a Runx2 null cell reconstitution assay, the HTY mutant did not activate the program of osteoblast differentiation (alkaline phosphatase, collagen type 1, osteopontin, bone sialoprotein and osteocalcin) in response to BMP2 signaling. Thus, subnuclear targeting function and formation of a RUNX2-SMAD osteogenic complex are functionally inseparable. Taken together, these studies provide direct evidence that RUNX2 is essential for execution and completion of BMP2 signaling for osteoblast differentiation.