Bone morphogenetic protein (BMP) controls osteoblast proliferation and differentiation through Smad proteins. Here we show that Tob, a member of the emerging family of antiproliferative proteins, is a negative regulator of BMP/Smad signaling in osteoblasts. Mice carrying a targeted deletion of the tob gene have a greater bone mass resulting from increased numbers of osteoblasts. Orthotopic bone formation in response to BMP2 is elevated in tob-deficient mice. Overproduction of Tob represses BMP2-induced, Smad-mediated transcriptional activation. Finally, Tob associates with receptor-regulated Smads (Smad1, 5, and 8) and colocalizes with these Smads in the nuclear bodies upon BMP2 stimulation. The results indicate that Tob negatively regulates osteoblast proliferation and differentiation by suppressing the activity of the receptor-regulated Smad proteins.